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

Question

Quizplus · Accepted Answer

Ricardian equivalence assumes that individuals have a perfect understanding of the future, and therefore treat current and future taxes as equivalent. However, if individuals are finite-lived, they may not have enough time to fully benefit from future tax cuts, which would make current and future taxes not equivalent. This would affect lifetime wealth for those currently alive, leading to a potential failure of Ricardian equivalence.

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