{"id":28367,"date":"2018-05-04T17:03:24","date_gmt":"2018-05-04T11:33:24","guid":{"rendered":"http:\/\/vskills.in\/certification\/blog\/?p=28367"},"modified":"2024-04-03T13:12:48","modified_gmt":"2024-04-03T07:42:48","slug":"is-govt-dept-affects-consumption-of-citizen","status":"publish","type":"post","link":"https:\/\/www.vskills.in\/certification\/blog\/is-govt-dept-affects-consumption-of-citizen\/","title":{"rendered":"Is govt dept affects consumption of citizen ?"},"content":{"rendered":"

\"is<\/a><\/p>\n

When the government cuts down the taxation rate then it faces budget deficit (expenditure over the revenue ); which is financed by borrowings from RBI. Then in future the government has to repay the loan to RBI . For this government will raise tax in future. Thus today fall in taxes will lead to rise tax in future; So we can conclude government debt is equivalent to future taxes.<\/p>\n

Now the question is – will this process effect the citizens of the country and their consumption?
\nThe answer is No; because consumers are forward looking; they know that tax cut today will lead to rise in the tax rate in future; thus the money today they have saved will be used to pay taxes in future hence consumption remain unchanged.<\/p>\n

But it is not true for those people who have binding constraint because for them current income is more important than future because bank loans are not available to them; so they will consume today whatever amount they saves from the reduction in taxes thus there future consumption will be low but it was an exceptional case.<\/p>\n

Overall we can say that reduction in taxes leads to tax rise in future ” Ricardian Equivalence “; thus consumption doesn’t get affected because people are more concern about their permanent income not on their temporary income.<\/p>\n

For Government certification on Finance and Banking – https:\/\/www.vskills.in\/certification\/accounting-banking-and-finance<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

When the government cuts down the taxation rate then it faces budget deficit (expenditure over the revenue ); which is financed by borrowings from RBI. Then in future the government has to repay the loan to RBI . For this government will raise tax in future. Thus today fall in taxes will lead to rise…<\/p>\n","protected":false},"author":398,"featured_media":51540,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_joinchat":[],"footnotes":""},"categories":[1519,4227],"tags":[4186],"class_list":["post-28367","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-accounting-banking-and-finance","category-economics","tag-consumption"],"acf":[],"yoast_head":"\nIs govt dept affects consumption of citizen ? - Vskills Blog<\/title>\n<meta name=\"description\" content=\"consumption and government\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.vskills.in\/certification\/blog\/is-govt-dept-affects-consumption-of-citizen\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Is govt dept affects consumption of citizen ? 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