A Note on Public Debt, Tax-Exempt Bonds, and Ponzi Games
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Summary:
By 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, also a finite number of subsequent generations may benefit. The welfare of all generations thereafter, however, will be lower than in the economy without public debt.
Series:
Working Paper No. 2007/162
Subject:
English
Publication Date:
July 1, 2007
ISBN/ISSN:
9781451867268/1018-5941
Stock No:
WPIEA2007162
Pages:
18
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