Ricardian equivalence

Ricardian equivalence

The controversial idea, suggested by David Ricardo, that government deficits do not affect the overall level of demand in an economy. This is because taxpayers know that any deficit has to be repaid later, and so increase their savings in anticipation of a tax bill. Thus government attempts to stimulate an economy by increasing public spending and/or cutting taxes will be rendered impotent by the private-sector reaction.

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Part of Speech: noun
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Industry/Domain: Economy
Category: Economics
Company: The Economist
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