Ricardian Equivalence revisited: introductory notes

These notes aim to revisit the debate, the model, the results, and main objectionsto the validity of the Ricardian Equivalence Theorem as presented in Barro (1974). Itis intended to explore his thesis that tax and debt are equivalent and have no real effect onperceived wealth, demand, the real interest rate or on the economy. The thesis refers to theanalysis of the ways of financing debt at a given level of government expenditure and doesnot address the effects of an expansion of this volume of spending, nor it specifically analyzesthe effects of an increase in public debt due to a tax reduction policy. After this presentation,the thesis is debated, consolidating some of the premises that are necessary to validate it. The purpose of the paper is to explore the first round of debates on the theme,explaining the restrictions to which the Barro-Ricardo Theorem or the Ricardian EquivalenceTheorem is subject, based on the publications by Barro (1976), Buchanan (1976) andFeldstein (1976), all of them within the ‘realm’ of economic orthodoxy. The final sectionpresents some remarks and an analysis of Barro’s later work (1989 and 1996). JEL Classification: E00; E13; E21; E62.