The argument that a change in government policy can be offset by a change in individual behaviour so as to leave equilibrium unchanged. For example, assume the government introduces a fully funded pension scheme under which each individual is taxed an amount τ‎ to pay for a pension. If the return on the pension scheme and on private saving is the same, then a reduction of private saving of amount τ‎ will offset the effect of the pension scheme and leave equilibrium unchanged. Moreover, if the level of saving was optimal for each individual before the pension scheme was introduced then it must be optimal to reduce saving exactly by the amount needed to offset the pension. Ricardian equivalence arises in many areas of economics. The original application was to debt. Assume the government gives bonds to individuals. Will spending rise because wealth has increased? The Ricardian equivalence arguments says not: the bond must eventually be redeemed which implies a future tax liability. The discounted value of the tax liability is exactly equal to the value of the bond. Net wealth does not increase and the equilibrium does not change. The range of policies that can be offset is extended if there are links between individuals in the economy. If every parent cares about the utility of their children then individuals are linked across generations and a range of intertemporal government policies can be offset by changes in bequests. Alternatively, if individuals are linked within a generation, say through marriage, then policies that attempt to redistribute within the generation can be offset by changes in transfers.