01 June 2008

An interesting cross-country test for the Ricardian equivalence

Tim Harford comments on the practical impacts of American and British tax plans, and defends that their impact will be the same, despite the different reasoning behind them.

"Here's why: Since neither the U.K. nor U.S. government intends to alter its spending plans, these tax holidays will be funded by government borrowing, borrowing that must eventually be repaid. That will require taxes to go up in the future or not to fall when they otherwise might."
By his concluding remark, Mr. Harford's interest is the political economy of the measure - whether people be fooled by this measure and vote for the wizard politicians. I personally wonder whether consumer behavior will vary between the two sides of the Atlantic. Could British people be more concerned about the well-being of their children than Americans are, or vice versa?

Other references about the tax-rebate:

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