Macroeconomics › Section R · The impacts of government borrowing › Topic R.3
Government borrowing and private saving
If people see that today's government borrowing means higher taxes tomorrow, they might save more now to pay them. That idea, Ricardian equivalence, would make deficits almost harmless; the evidence says it holds only in part.
In this topic
- The third possible response
- Ricardian equivalence
- What full equivalence would mean
- Worked example: saving a tax cut
- The assumptions behind it
- Who spends a tax cut
- What the evidence shows
- Worked example: a partial offset
- Why it still matters
- Common mistakes to avoid
- Key takeaways
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