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Article
On the Irrelevance of Government Debt when Taxes are Distortionary
Journal of Monetary Economics (2004)
  • Marco Bassetto, Federal Reserve Bank of Chicago
  • Narayana Kocherlakota, Stanford University
Abstract

We consider a government that can only raise funds by levying distortionary taxes. We allow the government to collect taxes in a given period that are based on incomes earned in previous periods. We show that once we do so, given any debt path, the government can adjust its tax policy so as to attain that debt path without affecting equilibrium allocations or prices.

Disciplines
Publication Date
March, 2004
Citation Information
Marco Bassetto and Narayana Kocherlakota. "On the Irrelevance of Government Debt when Taxes are Distortionary" Journal of Monetary Economics Vol. 51 Iss. 2 (2004)
Available at: http://works.bepress.com/bassetto/6/