Ricardian Equivalence and Payroll Taxation

Constantine Yannelis, Assistant Professor of Finance

This project aims to empirically explore Ricardian equivalence using recent changes to federal payroll taxation. Ricardian equivalence, the idea that consumers are forward looking and internalize debt-financed changes in government spending when making decisions, is key to studying the effectiveness of many policy interventions (Barro 1989). However, empirical evidence of Ricardian remains elusive, and the hypothesis is controversial.