A note on public debt, tax-exempt bonds, and Ponzi games

Berthold U. Wigger

Journal of Macroeconomics, 2009, vol. 31, issue 3, pages 492-499

Abstract: 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, 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.

Keywords: Public; debt; Tax-exempt; bonds; Capital; taxation; Ponzi; game (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:eee:jmacro:v:31:y:2009:i:3:p:492-499

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