Giuseppe Eusepi, Richard E. Wagner: Public debt: An illusion of democratic political economy
One of the longest standing debates in political economy is whether public debt imposes a net economic burden or not. At stake is whether governments should reembrace a concern for balanced budgets by seeking to devise and implement operable budget constraints, or, whether governments should drop the remaining vestiges of the concern for growing deficits to better fund government programs and public infrastructure.1 Thus, this debate is particularly consequential given its inextricable connection to the debate on the merits and viability of Keynesianism (Buchanan and Wagner 1997).
The position that the public debt does not impose a net economic burden, originally staked out by David Ricardo (1817), is that deficit and tax financing are equivalent. This is because citizens within a nation financing a given project or program with public debt will recognize the increase in their future tax liabilities and adjust their behavior accordingly, ensuring that the burden of the debt is...
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