In the late 1990s, debt-financed government spending decreased in Mexico.Following this decrease, consumption spending increased.Ricardian equivalence would explain this increase in consumption as the result of:

Question

Quizplus · Accepted Answer

Ricardian equivalence suggests that consumers may increase their consumption if they expect lower future taxes, which can induce them to save less. In this case, the decrease in debt-financed government spending may have signaled to consumers that taxes were likely to be lower in the future, leading to an increase in consumption spending.

In the Late 1990s, Debt-Financed Government Spending Decreased in Mexico