Ricardian equivalence is the proposition that

Question

Quizplus · Accepted Answer

Ricardian equivalence states that the method of financing government expenditure (taxes or debt) does not have any effect on consumers' behavior. This is because, according to the theory, consumers anticipate that any government spending will eventually have to be paid back through taxes, and therefore, they adjust their behavior accordingly regardless of the financing method. Therefore, it does not matter whether government expenditure is financed by taxes or debt.

Ricardian Equivalence Is the Proposition That