Recent developments in macroeconomics, specifically the Ricardian Equivalence theorem, advocate that rational tax-payers contemplate their future tax obligations while making current consumption decision. Therefore, a deficit fiscal policy will not lead to an increase in private consumption. Moreover, the former empirical finding that the effects of fiscal policy on economic factors tend to be small. Thus, the purpose of this paper attempts to analyze the effective of fiscal policy on Thai Household Consumption under Ricardian Equivalence Theorem. The theoretical model establishes the assumptions and facilitates in locating the root causes of the mismatch between Thai Household Consumption behavior and the theory by assigning the theoretical model on the basis of today’s economic system under Ricardian Equivalence Theorem. This theoretical model will be traced under Ricardian Equivalence Theorem. The study of Ricardian Equivalence Theorem has been revised and updated. The information in which are being used has been gathered serially from the annual report of Public Consumption and Investment Expenditure, Thai Household Consumption and Disposable Personal Income over the period of 1975 to 2006. The analysis indicates that the presence of liquidity-constrained individuals may be the source of Thai Household Consumption deviated from the Ricardian Equivalence Theorem in the cases of public expenditures test, public consumption expenditures test and public capital formation test. This study implies that increases in public expenditure may have some expansionary effect on aggregate demand. The analysis also finds that Thai consumer has infinite horizons corresponding to Ricardian Equivalence assumption.
