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The National Debt Controversy

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  • Randall G. Holcombe
  • John D. Jackson
  • Asghar Zardkoohi

Abstract

Some analysts have argued that the burden of public debt is passed on to the future because public debt competes for funds in private capital markets, which lowers capital accumulation. Others argue that using debt finance rather than taxation will have no real effects because an increase in debt will be offset by an equal increase in savings, in anticipation of the higher future taxes that will be needed to service the debt. An empirical test finds that savings changes are only about 20 percent of debt changes, ceteris paribus, implying that most of the burden of the debt is passed on to the future through reduced capital accumulation.

Suggested Citation

  • Randall G. Holcombe & John D. Jackson & Asghar Zardkoohi, 1981. "The National Debt Controversy," Kyklos, Wiley Blackwell, vol. 34(2), pages 186-202, May.
    • Handle: RePEc:bla:kyklos:v:34:y:1981:i:2:p:186-202
    DOI: 10.1111/j.1467-6435.1981.tb01183.x
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    Cited by:

    1. Aqdas Ali Kazmi, 1995. "An Econometric Estimation of Tax-discounting in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 34(4), pages 1067-1077.

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