David Ricardo published his Essay on the Funding System in 1820. He examined whether financing a war with current taxes differed from issuing bonds with infinite maturity and annual interest payments of £1 million.
Robert J. Barro provided theoretical foundation for Ricardo's speculation in 1974. His model assumed families act as infinitely lived dynasties due to intergenerational altruism and that capital markets were perfect within the framework allowing all agents to borrow and lend at a single rate.
Martin Feldstein argued in 1976 that Barro ignored economic and population growth factors. He demonstrated creation of public debt depresses savings in a growing economy.
Net private saving percentage fell from 8.55 percent in the 1976, 1980 period down to 7.47 percent in the 1981, 1986 period. Research by Chris Carroll James Poterba and Lawrence Summers showed these facts refute Ricardian equivalence hypothesis.
A study by Galí López-Salido and Valles published in 2005 provides further compelling evidence regarding consumption patterns following government spending shocks. Empirical analysis of U.S. data confirms consumption rises persistently after government spending shocks occur.