The view that a change in the timing of taxes does not affect people's consumption is known as the
A)tax equalization postulate.
B)fiscal policy equality law.
C)Lucas critique.
D)Ricardian equivalence proposition.

Question

Quizplus · Accepted Answer

The view that a change in the timing of taxes does not affect people's consumption is known as the Ricardian equivalence proposition. This proposition states that a government's decision to finance its spending through taxes or debt issuance should not affect people's behavior because they understand that the government will eventually have to pay back its debt by raising taxes or reducing spending in the future. Therefore, they save more in anticipation of this future tax increase, offsetting any temporary increase in disposable income resulting from a tax cut.

The View That a Change in the Timing of Taxes