Barro-Ricardian argument:
As the government has not changed its spending, the cut in
taxes today means that the government must have increased its
current borrowing (by selling bonds). As the government debt
has to be repaid with interest in the future, future taxes will be
higher which implies lower future disposable income.
Therefore although taxpayers would have more money now,
they realize that they would have to pay higher taxes in the
future. Therefore instead of spending more now they will save
the extra money in order to pay the future tax. The extra
saving by consumers would exactly offset the extra spending
by the government, so overall demand would remain
unchanged.
The idea that tax cuts do not affect desired consumption and
therefore also do not affect ational saving is called the
Ricardian Equivalence proposition
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