宏观经济学教辅资料 (4)

Chapter 14: Public Debt

Chapter Summary:

A look at the U.S. and U.K. debt ratios provides a historical perspective for evaluating the government and deficits. Students should note that the debt to GDP ratio tends to peak during wartime and recedes afterward. The government budget constraint introduced in chapter 12 is augmented to include real interest payments and the change in real debt. The concept of Ricardian Equivalence that government saving and household saving are substitutes; students should recognize that government bonds impose a future tax burden that is equal (in present value terms) to the current deficit. Therefore, the impact of the deficit on household budget constraint is no different from a balanced budget. The result is that deficits do not change the intertemporal pattern of spending in the economy. Tax cuts may have real effects on GDP if they alter the timing of household’s decisions; if the tax is imposed on income from labor and capital, changes in the tax rate will create intertemporal substitution effects on labor supply and investment. These intertemporal distortions can be avoided by tax-rate smoothing- maintaining fairly stable tax rates over time.

One of the conclusions of this chapter is that deficit financing is not particularly important; however, the government spending which it finances is important. Government spending imposes opportunity costs on society whether it is financed by issuing debt, raising taxes, or even open market operations (see the “Back to Reality section on page 359). The tendency in recent decades for government spending to grow over time has given rise to the possibility of strategic deficits - deficits which create public concern over government finances and create public pressure to limit the growth of government programs. The Reagan deficits of the 1980’s may have been motivated by these concerns.

The standard view of a budget deficit, in which Ricardian equivalence fails, is that increasing government debt leads to higher interest rates and lower levels of investment. One possible reason for Ricardian equivalence to fail is that the lifetimes of the current generation of taxpayers is finite, which implies they may be able to impose the future taxes on to another generation of taxpayers. In this case, a tax cut will be treated as an increase in their wealth. This may be offset somewhat by their desire to leave bequests to the next generation. Another reason is imperfections in credit markets. In this case the interest rate on private borrowing will be higher than the government rate, a tax cut will increase their wealth because it reduces the present value of their debt. In this case, the deficits have a beneficial effect on the economy by allocating credit more efficiently.