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Tedium alone won’t restore confidence in the economy
The theory of Ricardian Equivalence posits that financing public spending out of taxes or borrowing will have the same overall economic consequences. This, David Ricardo argued in 1820, was because rational consumers understand that debt will eventually have to be paid off. They will therefore set aside current income in anticipation of future tax rises.
Ricardo was writing in the aftermath of the Napoleonic Wars – an immense national endeavour funded through both the introduction of income tax and the equivalent of over £100bn in borrowing. Post-pandemic, we........
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