Robert / Barro 39 non-tax revenues, a cut in today's taxes must be matched by a corresponding increase in the present value of future taxes. Suppose now that households'demands for goods depend on the expected present value of taxes-that is, each household subtracts its share of this present value from the expected present value of income to determine a net wealth position. Then fiscal policy would affect aggregate consumer demand only if it altered the expected present value of taxes. But the preceding argument was that the present value of taxes would not change as long as the present value of spending did not change. Therefore, the substitution of a budget deficit for current taxes(or any other rearrangement of the timing of taxes)has no impact on the aggregate demand for goods. In this sense, budget deficits and taxation have equivalent effects on the economy -hence the term Ricardian equivalence theorem. To put the equivalence result another way, a decrease in the government's saving (that is, a current budget deficit)leads to an offsetting increase in desired private saving, and hence to no change in desired Since desired national saving does not change, the real interest rate does not have to rise in a closed economy to maintain balance between desired national saving and investment demand. Hence, there is no effect on investment, and no burden of the public debt or social security in the sense of Modigliani(1961)and Feldstein(1974) n a setting of an open economy there would also be no effect on the current-account balance because desired private saving rises by enough to avoid having to borrow from abroad. Therefore budget deficits would not cause current-account deficits Theoretical Objections to Ricardian Equivalence I shall discuss five major theoretical objections that have been raised against the Ricardian conclusions. The first is that people do not live forever, and hence do not care about taxes that are levied after their death. The second is that private capital The calculations use the government's interest rate in each period to calculate present values, and assume perfect foresight with respect to future government expenditures and taxes. For further discussion see Ben McCallum(1984)and Robert Barro(1989) The term, Ricardian equivalence theorem, was introduced to macroeconomists by James Buchanan(1976) After Gerald O Driscoll(1977)documented Ricardo s reservations about this result some economists have referred to the equivalence finding as being non-Ricardian. But, as far as I have been able to discover, David Ricardo(1951)was the first to articulate this theory. Therefore, the attribution of the equivalence theorem to Ricardo is te even if he had doubts about some of the theorem's assumptions. As to whether the presence of this idea in Ricardos writings is important for scientific progress, I would refer to Nathan Rosenberg's(1976, p. 79)general views on innovations in the social sciences happens in economics is that, as concern mounts over a particular problem.. an increasing number of professionals commit their time and energies to it. We then eventually realize that there were all sorts of sophisticated present-day understanding back into the work of earlier writers whose analysis of our more treatments of the subject in the earlier literature.. We then proceed to read much inevitably nore fragmentary and incomplete than the later achievement. It was this retrospective view which doubtless inspired whitehead to say somewhere that everything of importance has been said before-but by someone who did not discover it. "(This last point relates to"Stigler's Law, which states that nothing named after the person who discovered it