{
  "title": "A Note on Public Debt, Tax-Exempt Bonds, and Ponzi Games",
  "publication": "IMF Working Papers, July 1, 2007",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/a-note-on-public-debt-tax-exempt-bonds-and-ponzi-games-21101",
  "canonical": "https://www.imf.org/en/publications/wp/issues/2016/12/31/a-note-on-public-debt-tax-exempt-bonds-and-ponzi-games-21101",
  "overlayPath": "/en/publications/wp/issues/2016/12/31/a-note-on-public-debt-tax-exempt-bonds-and-ponzi-games-21101/index.md",
  "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.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- 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.\n- The paper analyzes welfare effects of such a Ponzi-type borrowing scheme across generations."
    },
    {
      "heading": "Main findings",
      "content": "- The welfare effects of a Ponzi-type borrowing scheme are mixed.\n- The current young will unambiguously benefit.\n- Depending on preferences and the aggregate technology, a finite number of subsequent generations may also benefit.\n- The welfare of all generations thereafter will be lower than in the economy without public debt."
    },
    {
      "heading": "Welfare implications and scenarios",
      "content": "- Scenario: Government issues tax-exempt bonds and never repays principal or interest.\n  - Immediate effect: current young gain welfare benefits.\n  - Intermediate effect: under some preference and technology configurations, a finite number of subsequent generations may gain.\n  - Long-run effect: all generations after that finite set experience lower welfare than in the no-public-debt economy.\n- Key mechanism: intergenerational redistribution generated by perpetually outstanding tax-exempt sovereign bonds in an otherwise dynamically efficient economy."
    },
    {
      "heading": "Subject and keywords",
      "content": "- Subject: Bonds, Capital income tax, Public debt, Sovereign bonds, Stocks\n- Keywords: capital market, Ponzi game, WP\n\nIMF Working Paper — A Note on Public Debt, Tax-Exempt Bonds, and Ponzi Games (Berthold U. Wigger, July 1, 2007).\n\n---\n\n Content in this bundle\n\n- A Note on Public Debt, Tax-Exempt Bonds, and Ponzi Games — Section 1\n  - A Note on Public Debt, Tax-Exempt Bonds, and Ponzi Games — Section 1 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - A Note on Public Debt, Tax-Exempt Bonds, and Ponzi Games — Section 1 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/a-note-on-public-debt-tax-exempt-bonds-and-ponzi-games-21101"
    }
  ],
  "bullets": [
    "[Markdown version](/en/publications/wp/issues/2016/12/31/a-note-on-public-debt-tax-exempt-bonds-and-ponzi-games-21101/index.md)",
    "[Structured JSON version](/en/publications/wp/issues/2016/12/31/a-note-on-public-debt-tax-exempt-bonds-and-ponzi-games-21101/index.json)",
    "[Bundle manifest](/en/publications/wp/issues/2016/12/31/a-note-on-public-debt-tax-exempt-bonds-and-ponzi-games-21101/bundle-manifest.json)",
    "Authors: Berthold U. Wigger",
    "Published: July 1, 2007",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451867268.001",
    "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 paper analyzes welfare effects of such a Ponzi-type borrowing scheme across generations.",
    "The welfare effects of 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.",
    "The welfare of all generations thereafter will be lower than in the economy without public debt.",
    "Scenario: Government issues tax-exempt bonds and never repays principal or interest.",
    "Key mechanism: intergenerational redistribution generated by perpetually outstanding tax-exempt sovereign bonds in an otherwise dynamically efficient economy.",
    "Subject: Bonds, Capital income tax, Public debt, Sovereign bonds, Stocks",
    "Keywords: capital market, Ponzi game, WP",
    "**A Note on Public Debt, Tax-Exempt Bonds, and Ponzi Games — Section 1**"
  ],
  "related": [
    {
      "title": "A Note on Public Debt, Tax-Exempt Bonds, and Ponzi Games — Section 1",
      "role": "document",
      "sourceUrl": "https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp07162.pdf",
      "summary": {
        "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp07162.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp07162.pdf",
        "mime": "application/pdf"
      }
    }
  ],
  "alternates": {
    "markdown": "/en/publications/wp/issues/2016/12/31/a-note-on-public-debt-tax-exempt-bonds-and-ponzi-games-21101/index.md",
    "json": "/en/publications/wp/issues/2016/12/31/a-note-on-public-debt-tax-exempt-bonds-and-ponzi-games-21101/index.json",
    "bundleManifest": "/en/publications/wp/issues/2016/12/31/a-note-on-public-debt-tax-exempt-bonds-and-ponzi-games-21101/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-17T08:32:45.123Z"
}