Consider the effect of a tax cut (if government spending remains the same) in a country with
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Consider the effect of a tax cut (if government spending remains the same) in a country with an underdeveloped financial system.
a) Assuming individuals are forward looking (i.e., the Ricardian equivalence argument holds), what do you think might happen to national saving in this case?
b) How do you think forward-looking individuals might overcome the limitations of an underdeveloped financial system?
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a In a country with an underdeveloped financial system where individuals are forwardlooking and adhere to the Ricardian equivalence argument a tax cut ...View the full answer
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