This is a controversial hypothesis that has been thoroughly studied for many years.

In this
process, many results emerged that either support or contradict the hypothesis. At its core, it
states that government spending doesn't always affect consumption decisions in the desired
way, which means that there won't always be a change in aggregate demand. This is because
the consumers monitor the governments budget when deciding on their consumption
behavior. For example, if the government increases its spending based on making debts
(exceeding its budget), then that means that the budget is balanced anymore, which demands
compensation at a later point {Rendahl 2012 #60}. Following this train of thought, the
consumers would not spend more, but rather save up money because they anticipate an
increase in taxes at a later point in order to balance the government budget again. In this case,
government spending would increase, but the aggregate demand would not rise. The same
accounts for increased government spending that is based on tax money; according to this
hypothesis, any extra spending by the government must be regained later on. Anticipating this
moment, people will save more money, rather than spend more, which means that generally,
government spending won't influence the demand, which remains unchanged {Rendahl 2012
#60}.

The arguments against the Ricardian equivalence are quite strong. The main one states that
the theory is based on unrealistic assumptions. „These assumptions include such things as the
existence of perfect capital markets and the ability for individuals to borrow and save
whenever they want – scenarios which are not realistic” {Kenton 2018 #59} para.3.
Furthermore, the theory believes that people may save up money for tax raises that are not
necessarily in their lifetime. When looking at real-life data, the theory fails in certain events of
increased government spending. “There is no evidence that the Ricardo-Barro effect changed
saving when the Reagan administration cut taxes and hiked military spending between 1981-
85. In fact, net private saving as a percentage of GNP fell to 7.47% during the 1981-86 period,
from 8.5% in 1976-80” {Kenton 2018 #58}

But there is also real-world proof for the theory. In I simplified manner, one could assume that
the Ricardian Equivalence suggests that as the government increases its spending, the citizens
of the country will start saving more money in order to prepare for future tax raises.
Following this logic, “countries with high levels of debt should also have comparatively
higher levels of household savings” {Kenton 2018 #59} para. 4. “The eurozone financial
crisis has provided some evidence to support Ricardian equivalence. Based on data from
2007, there is a strong correlation between government debt burdens and changes in
households’ financial assets for 12 of the 15 countries within the union” {Kenton 2018 #58}.