The argument that households will increase savings to pay increases in future taxes which result from a tax cut financed from deficit spending

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The argument that households will increase savings to pay for future taxes resulting from a tax cut financed from deficit spending is known as the Barro-Ricardo equivalence theorem. It suggests that people understand that current tax cuts will eventually have to be paid for with future tax increases and, as a result, they will save more in anticipation of those future taxes. This theory has been debated among economists, and there is mixed evidence on its validity.

The Argument That Households Will Increase Savings to Pay Increases