Why does sound finance not depend on the Ricardian equivalence theorem? The Rica

Question

Why does sound finance not depend on the Ricardian equivalence theorem?

The Ricardian equivalence theorem says that people increase their savings in anticipation of an increase in taxes in the future to pay for that deficit. Sound finance is based on political grounds, not economic principles. The Ricardian equivalence theorem says that interest rates will rise when government increases expenditures, fully crowding out private investment. Sound finance says that governments should make spending and taxing decisions based on their effect on the economy, not moralistic principles.

Explanation / Answer

Suppose that the government wants to acquire the resources necessary to implement a new expenditure program G = {g1, g2, g3 ... }, where gt denotes government purchases of goods and services at date t.

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