If people are finite-lived, Ricardian equivalence can fail because
A) lifetime wealth will change for those currently alive.
B) people cannot predict the future.
C) this implies taxes must be distorting.
D) there is intragenerational redistribution.
E) people make bequests.

Question

Quizplus · Accepted Answer

Ricardian equivalence assumes that current households will fully anticipate future tax liabilities and adjust their consumption accordingly. However, if people have finite lives, their lifetime wealth will be affected by changes in tax policy, which can cause them to change their spending behavior. As a result, Ricardian equivalence may not be valid in this case.

If People Are Finite-Lived, Ricardian Equivalence Can Fail Because