Ricardian equivalence

The Ricardian equivalence proposition (also known as the Ricardo–De Viti–Barro equivalence theorem) is an economic hypothesis holding that consumers are forward looking and so internalize the government's budget constraint when making their consumption decisions. This leads to the result that, for a given pattern of government spending, the method of financing that spending does not affect agents' consumption decisions, and thus, it does not change aggregate demand. Thus, this theorem is used as an argument against tax cuts and spending increases aimed to boost aggregate demand.