The Ricardian equivalence theorem implies that
A) government debt policy must be handled correctly for the economy to prosper.
B) the amounts of government spending are neutral.
C) an increase in government spending has no effect on the economy, as long as there is an equal change in taxes.
D) the timing of taxes collected by the government is neutral.
E) the present value of government spending must be equal to the present value of taxes.

Question

Quizplus · Accepted Answer

Ricardian equivalence suggests that the timing of taxes does not affect consumer behavior because people anticipate future taxes to pay off government debt, thus neutralizing the effect of current fiscal policy.

The Ricardian Equivalence Theorem Implies That