National debt burden and ricardian equivalence

Abstract

The paper deals with the views of Ricardo on the national debt issue. Ricardo, as well as other representatives of classical economics held the view that exorbitant taxation is the inevitable result of a large accumulation of national debt. Although an increase in the value of the annual produce leads to increased tax revenue received by the state, even at a constant level of the tax burden (the ratio of tax revenue to GDP). Provided statistical data on taxation and national debt growth show that tax burden remains around the same level, and fluctuations of that level by no means commensurate with the changes in the growth of public debt. Considerable attention to the problem of so-called “Ricardian equivalence theorem” is paid. According to “equivalence theorem”, formulated by American economist Robert Barro, future taxes for consumer are equal to the current taxes. But this does not reflect the real economic laws and is a simplification of the provisions made by Ricardo.