تذکر بر روی بدهی عمومی، اوراق قرضه معاف از مالیات، و بازی های پانزی

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, a finite number of subsequent generations may also benefit. However, the welfare of all generations thereafter will be lower than in the economy without public debt.

The Diamond (1965) overlapping generations model may generate competitive equilibria in which the growth rate of the labor force exceeds the long-run return on capital. In these cases the economy is said to be dynamically inefficient, and the government can play a so-called Ponzi game. That is, the government can issue bonds and roll over interest and principal from period to period by perpetually issuing new bonds to render debt service. Such a Ponzi game is beneficial as it removes overaccumulation of capital associated with dynamic inefficiency.1 As has been demonstrated by Uhlig (1998), the government can even run a Ponzi game if the economy without public debt is dynamically efficient. This becomes possible when the return on private bonds or equity is taxed and the government issues tax-exempt bonds.2 Uhlig’s analysis confines attention to a comparison of welfare in various steady state equilibria. The present note, in contrast, fully characterizes the dynamics of the model economy. It demonstrates that unlike a traditional Ponzi game, the welfare effects of a Ponzi game based on the issuance of tax-exempt bonds are mixed. The current young will unambiguously benefit. In addition, a finite number of subsequent generations may also benefit, depending on preferences and the aggregate technology. Thereafter, however, welfare is lower than in the economy without public debt.

The present note has shown that the government may issue bonds and roll over interest and principal, that is, run a Ponzi game, even if the economy without public debt is dynamically efficient. This becomes possible when the government taxes capital income and the net of tax interest rate is smaller than the economy’s rate of growth, whereas the gross of tax interest rate is larger. Then, if the government exempts interest payment on public bonds from capital taxes, the total amount of public debt will grow at a lower rate than aggregate income and, as a consequence, a Ponzi game becomes feasible. Such a Ponzi game will benefit the current young generation and, depending on the parameters of taste and technology, a finite (possibly large) number of future generations. Thereafter, however, welfare is lower than in an economy without public debt. Thus, tax-exempt bonds may be employed by governments that seek to gratify current generations and those living in the not too distant future.