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Debt neutrality, Professor Vickrey and Henry George's 'single tax'

  • Buiter, Willem H.

In the overlapping generations model with uncertain lifetimes, efficient life insurance markets and no operative intergenerational gift and bequest motive, a positive birth rate has been shown to be sufficient and necessary for absence of debt neutrality: equilibrium prices and quantities are independent of the mix of government borrowing and lump-sum taxation, holding constant the path of exhaustive public spending. Implicit in this analysis has been the assumption that the lump-sum tax is a tax on the income from human capital. Postponing lump-sum taxes then makes it possible to shift (part of) the tax burden to future generations if the birth rate is positive. If instead the tax falls on the income from a non-human fixed factor (land) whose ownership claims are priced efficiently, then, if all land is owned by generations currently alive, changes in the intertemporal pattern of taxation do not permit current generations to shift the tax burden to future generations. Taxes on the income from all "fully owned non-human-factors have this property, even those factors supplied elastically, but the latter will of course be subject to the familiar incentive or allocative effects of changes in (non-lump-sume) taxation.

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File URL: http://www.sciencedirect.com/science/article/B6V84-458XT76-FX/2/579811607b9a983332b83fa74af8b7d0
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 29 (1989)
Issue (Month): 1 ()
Pages: 43-47

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Handle: RePEc:eee:ecolet:v:29:y:1989:i:1:p:43-47
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  1. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  2. Buiter, Willem H, 1988. "Death, Birth, Productivity Growth and Debt Neutrality," Economic Journal, Royal Economic Society, vol. 98(391), pages 279-93, June.
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