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The Incidence and Effects of Public Debt in the Absence of Fiscal Illusion

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  • James M. Buchanan
  • Jennifer Roback
Abstract
This article clarifies several points concerning the effects of public debt. First, the article clarifies the distinction between the Ricardian equivalence and Barro neutrality theorems. Second, the article develops a voting model with two types of families, neither of whom have fiscal illusion. We show that debt may have redistributive consequences and that some voters will rationally prefer debt to taxes. In this way, we develop a rudimentary positive theory of debt issue. We also verify the proposition that debt issues that redistribute income are not neutral with respect to savings and consumption.

Suggested Citation

  • James M. Buchanan & Jennifer Roback, 1987. "The Incidence and Effects of Public Debt in the Absence of Fiscal Illusion," Public Finance Review, , vol. 15(1), pages 5-25, January.
    • Handle: RePEc:sae:pubfin:v:15:y:1987:i:1:p:5-25
    DOI: 10.1177/109114218701500101
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    References listed on IDEAS

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    1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    2. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    3. Joseph E. Stiglitz, 1988. "On the Relevance or Irrelevance of Public Financial Policy," International Economic Association Series, in: Kenneth J. Arrow & Michael J. Boskin (ed.), The Economics of Public Debt, chapter 2, pages 41-76, Palgrave Macmillan.
    4. Willem H. Buiter, 1983. "The Theory of Optimum Deficits and Debt," NBER Working Papers 1232, National Bureau of Economic Research, Inc.
    5. Buchanan, James M, 1976. "Barro on the Ricardian Equivalence Theorem," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 337-342, April.
    6. Buchanan, James M, 1985. "The Moral Dimension of Debt Financing," Economic Inquiry, Western Economic Association International, vol. 23(1), pages 1-6, January.
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    Cited by:

    1. Ernest Dautovic, 2018. "The weight of the median voter ageing on public debt," Constitutional Political Economy, Springer, vol. 29(1), pages 69-92, March.
    2. Derek Hung Chiat Chen, 2003. "Intertemporal excess burden, bequest motives, and the budget deficit," Policy Research Working Paper Series 3086, The World Bank.

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