following statement is from the cfa1 text the taxpayers increase their own saving by the same amount that the government is dissaving through its defict. my question why it has to be the same amount in theory.
wolwol, maybe Wiki can help clarify this for you. http://en.wikipedia.org/wiki/Ricardian_equivalence
Also note the almost humorous comment in the text that states that the effect really doesn’t hold in reality.
the word ‘same amount’ signifies the exact relation between tax and government earnings. if the tax payers, start doing more savings (providing tax rebates), then ultimately, they’ll be paying less tax to govt. tax is one of the source of income of government, to work and thrive. if they’ll get less tax, then ultimately they’ll be in deficit. now, here, ‘same amount’ says, the amount saved in tax(by saving) by a tax payer would be the exact amount which will count as dis-saving for govt. being in deficit. hope am able to clear the point.