Assume that nobody cares about the economic well-being of future generations.The Ricardian equivalence view of the effect of debt-financed tax cuts is therefore:

Question

Quizplus · Accepted Answer

The Ricardian equivalence view suggests that individuals adjust their saving and consumption patterns in anticipation of future taxes required to finance current government spending. If future generations were assumed to be indifferent to the economic well-being of their successors, this assumption would suggest that taxpayers will recognize that the government's issuance of debt to finance tax cuts now means higher taxes in the future. As a result, they will save rather than consume the additional income that they receive from the tax cut, to finance the future tax bills or interest payments on the debt. Therefore, the tax cut financed by debt would not lead to any additional consumption or economic growth, and only a partial Ricardian equivalence would hold. Most taxpayers will still pay taxes for a substantial number of years after the tax cut, and they would take the future tax burden into account when assessing the impact of tax cuts financed by debt.

Assume That Nobody Cares About the Economic Well-Being of Future