Macroeconomics 6th Edition by Robert Hall,Marc Lieberman

Exercise 4

Some economists have argued that when the government cuts taxes in a way that increases the debt ratio, people recognize that tax rates will have to rise in order to pay higher interest on the debt. They may begin saving more now in order to pay those higher tax rates later. In the extreme case (called "Ricardian equivalence"), people would save all of their tax cut to pay the expected higher taxes in the future. If Ricardian equivalence holds, what would be the value of the tax multiplier? Why?