<p>In <a href="https://en.wikipedia.org/wiki/Ricardian_equivalence" rel="nofollow noreferrer">Ricardo–de Viti–Barro equivalence</a>, when taxes are too low to support current expenditures, they expect taxes to rise in the future and that the NPV of the future taxes exactly equal the amount by which taxes are lower today. Therefore, they save their reduced taxes in government bonds (reinvesting all proceeds) to ensure they have exactly the right amount of money to meet future tax burdens. In turn, the government, borrower the money with government bonds to meet the tax shortfall. However, if the rate at which the household can save is lower than the interest rate that the government borrows at, this does not work. They have to set aside an amount greater than their tax savings to pay future taxes, and then the household is no longer indifferent between taxes now and taxes later.</p>

CC BY-SA 4.0
2023-01-02T19:42:44.850Z
2023-01-02T19:42:44.850Z
BKay
<p>Barro helped define Ricardian equivalence, wherein one of the assumptions was that the capital market is perfect(can lend and borrow at a single rate). 
so it can be easily inferred that Ricardian equivalence does not hold true when borrowing and lending rates are different. 
and while it is assumed under Ricardian equivalence that consumers are able to save/ spend according to tax regimes, it is debatable, as was mentioned by Ricardo himself, that people may have a myopic approach towards tax regimes. 
although it holds credibility in some specific examples, the discounting of one of its basic assumptions can be the reason for it not holding true when borrowing and lending rates are different.</p>

<p>it would be more helpful if you could elaborate on the type of examples/statements you want to support your answer.</p>

CC BY-SA 4.0
2020-04-17T14:11:58.943Z
2020-04-17T14:11:58.943Z
themanwhosoldtheworld
<p>The financial gain isn't fit for purpose in an operational sense; I say debt is constitutional before deflation, yet complementary layoff are still deflation when accounting for whole life as pricing axis.</p>
<blockquote>
<p>By a system of finance I do not mean the finances of the Crown, which consist in distributing among the citizens and utilizing those charges that are indispensable for the maintenance of the Crown and the state with the greatest security, the least confusion and the most equitable sharing of the burden, but the finances of the country, which should be carefully distinguished from the former and consist in the manner of establishing the coinage of the realm on such a footing as will best promote security and enterprise in all productive occupations, from which the country as a whole and each individual subject derive their proper increase and strength. [Anders (Antti) Chydenius, A Remedy for the Country, 1766]</p>
</blockquote>

CC BY-SA 4.0
2023-02-02T19:50:05.127Z
2023-02-02T19:50:05.127Z
Nick Carducci for Carface Bank
<p>If you can propose any explanation (intuitive, graphical or algebraic), I will appreciate it</p>

CC BY-SA 4.0
2020-04-14T16:54:57.107Z
Ricardian equivalence fails for a much more simple reason -- people are not machines.
123
CC BY-SA 4.0
2020-04-15T17:47:19.040Z
Can you give some more details so we can best help you? E.g. how do you understand Ricardian Equivalence and what are your own thoughts on the possible answer?
BB King
<macroeconomics><intertemporal-choice>
Why does Ricardian Equivalence not hold when there are different borrowing and lending rates on the market?
Arx
# Why does Ricardian Equivalence not hold when there are different borrowing and lending rates on the market?

(Asked by: username_0 on 2020-04-14)

If you can propose any explanation (intuitive, graphical or algebraic), I will appreciate it

**Tags:** macroeconomics, intertemporal-choice

> **Comments:**
> **username_1**: Ricardian equivalence fails for a much more simple reason -- people are not machines.  
> **username_2**: Can you give some more details so we can best help you? E.g. how do you understand Ricardian Equivalence and what are your own thoughts on the possible answer?  

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## 3 answers

### Answer by username_3 on 2023-01-02. Score: 1

In [Ricardo–de Viti–Barro equivalence](https://en.wikipedia.org/wiki/Ricardian_equivalence), when taxes are too low to support current expenditures, they expect taxes to rise in the future and that the NPV of the future taxes exactly equal the amount by which taxes are lower today. Therefore, they save their reduced taxes in government bonds (reinvesting all proceeds) to ensure they have exactly the right amount of money to meet future tax burdens. In turn, the government, borrower the money with government bonds to meet the tax shortfall. However, if the rate at which the household can save is lower than the interest rate that the government borrows at, this does not work. They have to set aside an amount greater than their tax savings to pay future taxes, and then the household is no longer indifferent between taxes now and taxes later.


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### Answer by username_4 on 2020-04-17. Score: 0

Barro helped define Ricardian equivalence, wherein one of the assumptions was that the capital market is perfect(can lend and borrow at a single rate).
so it can be easily inferred that Ricardian equivalence does not hold true when borrowing and lending rates are different.
and while it is assumed under Ricardian equivalence that consumers are able to save/ spend according to tax regimes, it is debatable, as was mentioned by Ricardo himself, that people may have a myopic approach towards tax regimes.
although it holds credibility in some specific examples, the discounting of one of its basic assumptions can be the reason for it not holding true when borrowing and lending rates are different.

it would be more helpful if you could elaborate on the type of examples/statements you want to support your answer.


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### Answer by username_5 on 2023-02-02. Score: -1

The financial gain isn't fit for purpose in an operational sense; I say debt is constitutional before deflation, yet complementary layoff are still deflation when accounting for whole life as pricing axis.

> By a system of finance I do not mean the finances of the Crown, which consist in distributing among the citizens and utilizing those charges that are indispensable for the maintenance of the Crown and the state with the greatest security, the least confusion and the most equitable sharing of the burden, but the finances of the country, which should be carefully distinguished from the former and consist in the manner of establishing the coinage of the realm on such a footing as will best promote security and enterprise in all productive occupations, from which the country as a whole and each individual subject derive their proper increase and strength. [Anders (Antti) Chydenius, A Remedy for the Country, 1766]


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