Deficits and Interest Rates as Evidence of Ricardian Equivalence

The current political debate regarding the federal deficit focuses on how much and how fast to cut the deficit. This one-sided debate implicitly accepts the conventional view that fiscal deficits are evil because they crowd out private investment (in a closed economy) or net exports (in a small open economy). There is an alternative, however, to the standard view of the deficit, namely, Ricard equivalence.