According to Ricardian equivalence, an increase in government expenditure without a proportional tax increase implies that households expect future tax increases and will reduce spending today.

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Ricardian equivalence suggests that individuals will see an increase in government spending as a signal that taxes will need to be raised in the future to finance this spending. As a result, these individuals will reduce their current consumption to save for these expected future tax increases. Thus, an increase in government expenditure without a proportional tax increase will lead to reduced current consumption and saving by households.

According to Ricardian Equivalence, an Increase in Government Expenditure Without