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

Berthold Wigger ()

Journal of Macroeconomics, 2009, vol. 31, issue 3, 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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Citations: View citations in EconPapers (6)

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