Ricardo equivalent, the origin of state debt, itsmeaning and practical purpose


David Aslanishvili დავით ასლანიშვილი


state debt, ricardo equivalent, incomplete equivalent, budget deficit, population perception


Our research describes the essence of the state debt and its purpose. When the state borrows money, it promises you to pay. To make this payment (payments), the state increases the bargain (if required) to pay this debt along with many other current payments. The economic effect in this regard is due to the fact that the tax payer perceives the future taxes. The measurement of the perception is difficult and neither the economists nor the other professors are able to form a precise and realized perfection formula.

Our analysis is a decisive factor in the time and level of consciousness of the population on this issue (the threat) and what it is to determine the effect of financial borrowing on bond loans.

This hypothesis is known as the Ricardian equivalent (Ricardian equivalent of the famous economist David Ricardo). Ricardo first considered this issue in his work.

We have a hypothesis that the population does not recognize the introduction of new taxes or the increase of existing ones, despite the current deficit in reality. In this situation, if the initial stage of the payout is partially replaced by the state loan, it will create a sense of the current life and improvement of the population's income. This hypothesis is accompanied by a rational decision - community members begin to spend more money. However, the final result will be that the state taxpayer must be tied to the amount that the state will fully lend to the existing debt, with interest accrued on it. There will be an unexpected effect here: since the society does not expect the increase of the bargain, each member will have to cut costs even when the payoff is paid.

The theoretical aspect and practical scenario discussed by us gives us the following conclusion: A deficit is needed when the economy is in place with an economic downturn and economic crisis. This view is based on the fact that the resource received by the government securities emissions will cover the reduced budget and, at the same time, the reduction of the rate of pay, which will ease the economic condition of the wider population of the population.


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October 22, 2018

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Physical Dimensions