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课件网) DEFICIT FINANCE Chapter 20 How Big Is the Deficit Deficit Surplus On-budget deficit Off-budget deficit 20-* How Big Is the Deficit Source: Congressional Budget Office [2012b] 20-* How Big Is the Debt National (Public) Debt Stocks vs. Flows 20-* How Big Is the Debt Source: Congressional Budget Office [2012b] 20-* Interpreting Deficit, Surplus, and Debt Numbers Government Debt held by the Federal Reserve Bank State and Local Government Effects of Inflation Inflation tax Capital versus Current Accounting Tangible Assets Implicit Obligations Summing Up 20-* The Burden of the Debt Statutory versus Economic Incidence One Hand Borrows from the Other Internal Debt External Debt 20-* Overlapping Generations Model The Period 2010-2030 Young Middle-Aged Old (1) Income $12,000 $12,000 12,000 (2) Government Borrowing -6,000 -6,000 (3) Government- provided consumption 4,000 4,000 4,000 The Year 2030 Young Middle-Aged Old (4) Government raises taxes to pay back debt -4,000 -4,000 -4,000 (5) Government pays back debt +6,000 +6,000 20-* Overlapping Generations Model Generational Accounting Computation of Net Tax PV of transfers received – PV of taxes paid 20-* Other Models Neoclassical Model Crowding Out Hypothesis Empirical testing of the hypothesis Ricardian Model Intergenerational transfers Form of Finance is irrelevant Empirical evidence 20-* To Tax or To Borrow Benefits-Received Principle Intergenerational Equity Efficiency Considerations χ = εLt2 Deficits and Functional Finance Functional finance Moral and Political Considerations Federal Debt and the Risk of a Fiscal Crisis Controlling the Deficit 20-* Present Value of Tax Payments Under Alternative Taxing/Borrowing Decisions Policy Year 1 Year 2 All Future Years PV @ 10% interest rate Spend an additional $100 in year 1 100 0 0 100 Financing Options Balanced budget: raise 100 in taxes in year 1 100 0 0 100 Deficit Finance I: borrow 100 in year 1 and pay back debt plus interest in year 2 by raising taxes 0 110 0 100 Deficit Finance II: borrow 100 in year 1 and pay interest on debt in all subsequent years always rolling over debt principle 0 10 10 100 20-* To Tax or To Borrow Tax rate Excess Burden t 2t χ2 χ1 20-* Chapter 20 Summary When government spending > revenues, it must borrow money: debt is the sum of past deficits & surpluses Economic research centers on whether future generations carry the burden of government debt Several factors influence whether government should finance expenditures through taxes or debt From an efficiency point of view, the excess burden of tax vs. debt financing should be considered Options for controlling the deficit include changing budget-making processes and a constitutional amendment 20-*
