If the $1,000 windfall had come from a lucky night at the casino, Barro would make the same prediction as Modigliani about consumption. But if the windfall is a temporary tax cut that is financed by issuing government bonds, then Barro’s prediction changes. The bonds will have to be repaid eventually. The beneficiary of the tax cut understands all this, and realizes that his heir’s taxes will eventually have to go up to pay for the tax cut he is receiving, so he won’t spend any of it.
