Ricardian equivalence tells us that the timing of taxes (none/does/doesn\'t/GDP)
ID: 1151333 • Letter: R
Question
Ricardian equivalence tells us that the timing of taxes (none/does/doesn't/GDP) matter. What (none/does/doesn't/GDP) matter is the present value of government expenditures. If the government cuts taxes today, without changing the expenditures, the consumers lifetime wealth (none/does/doesn't/GDP) change, because the government will have to balance the budget changing taxes tomorrow. In short, a government deficit (or surplus) today (none/does/doesn't/GDP) matter for economic activity (if expenditures are untouched)!
Explanation / Answer
Answer.) Ricardian equivalence tells us that the timing of taxes (does) matter. What (doesn't) matter is the present value of government expenditures. If the government cuts taxes today, without changing the expenditures, the consumers lifetime wealth (doesn't) change, because the government will have to balance the budget changing taxes tomorrow. In short, a government deficit (or surplus) today (doesn't) matter for economic activity (if expenditures are untouched)!