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Long-Run Effects of Debt versus Tax Financing

1975; SAGE Publishing; Volume: 3; Issue: 4 Linguagem: Inglês

10.1177/109114217500300403

0048-5853

Anibal Cavaco Silva,

Economic theories and models

This paper reexamines Modigliani's remits of the long effects of an increment in public debt to finance a tax reduction or arising from a free distribution of government bonds Firstly, the effect of debt service on human and nonhuman wealth is introduced into the analysis. Secondly, it is shown that for the purpose of long-run debt analysis it is not legitimate to treat the cumulated change in saving as an equal change in net worth. This leads to a major correction of Modigliani's results.