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In the last fifteen years a growing number of papers have made use of the advances in the field time series econometrics. It was realised that most economic variables, such as GDP, consumption and price level are not stationary. They usually are integrated and the standard significance tests are usually misleading. The affects of unit roots in macro economic data are quite deep if a structural variable is in econometric sense an I(1) series , shocks to it will have permanent effects , which in turn , has important implications for the analysis of macroeconomic policy. Khalid (1996) extends this study and analyses a panel of 21 developing countries, over the period of 1960-1988. He used a technique known as ‘Full information Maximum Likelihood to deal efficiently with simultaneity problems. In 12 cases he was unable to reject ricardian equivalence and in 5 cases he concluded that the failure of ricardian equivalence can be attributed to liquidity constrained consumers.

Ricardian equivalence though has been mostly documented in macroeconomic terms but the theory also has substantial microeconomic content. The ineffectiveness of fiscal policy at the micro level can be attributed to individuals saving behaviour and changes to it to sustain the burden of future taxation. In recent times some exceptions are present and studies on the micro content of this theory have been carried out.

Conway (1999) considers changes in supply of labour in response to changes in future taxation. The theory behind the study was that if workers perceive the fact that deficit finance today implies an increase in taxation in the future, they would take this into account when formulating their future expectations about net wages. If taxes in the future are foreseen to be higher, they may inter-temporally substitute their labour supply, working more currently and less in the future. Conway's result showed that a one-dollar increase in tax financed deficit results in a 5-hour increase in labour supply, a result that is consistent with ricardian equivalence. These results should be taken with some caution.

In the numerical example earlier in the paper regarding the very basic Ricardian equivalence theory the tacit assumption was of an individual having an infinite life/horizon. The answer to an honest question that ‘how many 150 year olds we know?', certainly sheds light on the theoretical framework knitted by the equivalence theory and asks questions of it . When individuals are rightly assumed to have finite horizons the theory does not look that straight forward. Re-routing our analysis we come to a well known type of economy of ‘Samuelson(1958)-Diamond(1965)', where more logically individuals live for two periods, yound and old, in a succession of over-lapping generations. These individuals derive satisfaction from their own individual consumption. The government in this model raises funds through an income tax and deficit financing. We find in an economy like such or as a matter of fact any model of the economy in which individuals live more than to periods and the future taxes implicit in deficit financing are bourne by future generations. The reasoning can be sketched such that at the time of issue of the debt by government the current working generation would see a lowering of their tax burden of whose redemption they need not worry as their future generations would be handed th