Why are many economists skeptical about the validity of Ricardian equivalence?
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First Ricardian equivalence assumes that households are forward looking in an extreme sense which may well not be true considering the time horizon for which households would have to plan Second for Ricardian equivalence to hold financial markets must work well enough so that households can borrow or save as much as they would like at the current interest rates which may not be the case Third changes in taxes may affect household ...View the full answer
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Related Book For
Macroeconomics
ISBN: 9780132109994
1st Edition
Authors: Glenn Hubbard, Anthony Patrick O'Brien, Matthew P Rafferty
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