Ricardian equivalence suggests deficit spending is equivalent to an immediate tax increase, as households recognize that government debt requires future taxation. However, many assumptions must hold true, and empirical evidence is sparse. Ricardian equivalence, sometimes called Barro-Ricardo equivalence, is a hypothesis used to suggest that deficit spending cannot stimulate the economy. The proposed equivalence is […]

The Ricardian equivalence suggests that deficit spending is equivalent to an immediate tax increase because participants in the economy will recognize that the deficit requires future taxes. The theory is named after David Ricardo and was developed by Robert Barro in 1974, but strong empirical evidence for it is scarce and most economists do not […]