A note on public debt, tax-exempt bonds, and Ponzi games
AbstractBy issuing tax-exempt bonds, the government can incur debt and never pay back any principal or interest, even if the economy without public debt evolves on a dynamically efficient growth path. The welfare effects of such a Ponzi type borrowing scheme are mixed. The current young will unambiguously benefit. Depending on preferences and the aggregate technology, a finite number of subsequent generations may also benefit. However, the welfare of all generations thereafter will be lower than in the economy without public debt.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Macroeconomics.
Volume (Year): 31 (2009)
Issue (Month): 3 (September)
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Web page: http://www.elsevier.com/locate/inca/622617
Public debt Tax-exempt bonds Capital taxation Ponzi game;
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