chapter  5
Study of the economic effect mechanism of national debts issuance
ByGao Peiyong
Pages 16

Modern economists began paying attention to the Ricardian Equivalence Theorem when they were concerned with the influence of national debts on the macro economy. The correlation between tax cuts and successive issuance of national debts implied an important message that analysis of the economic effect mechanism of national debts could begin with comparison between national debts and other forms of fiscal revenue. According to logical order, national debts will first influence households and enterprises through change in private demands, such as private consumption and private investment. One of the most important reasons why national debts appeared later than taxation is that tax can't satisfy the demand of the increasing fiscal expenditure due to expansion of government functions. The issuance of national debts means an action that transfers some capital from households and enterprises to government.