A Note on Public Debt, Tax-Exempt Bonds, and Ponzi Games

Berthold Wigger

No 2007/162, IMF Working Papers from International Monetary Fund

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, 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.

Keywords: WP; Ponzi game; capital market (search for similar items in EconPapers)
Pages: 18
Date: 2007-07-01
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Citations: View citations in EconPapers (2)

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