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The Welfare Costs of Deficit Finance

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  • Hansson, Ingemar
  • Stuart, Charles

Abstract

The authors analyze the welfare consequences of deficit finance in a gene ral equilibrium model fit to the U.S. economy. Current spending may b e financed with current and/or future distortionary taxes. The econom y is open to international capital flows. The welfare costs of financ ing marginal current spending are substantial and are sensitive to th e timing of the required taxes; postponing a tax on labor income is a dvantageous, but postponing a tax on asset income is not. Ricardian e quivalence poorly approximates the economy considered. Copyright 1987 by Oxford University Press.

Suggested Citation

  • Hansson, Ingemar & Stuart, Charles, 1987. "The Welfare Costs of Deficit Finance," Economic Inquiry, Western Economic Association International, vol. 25(3), pages 479-496, July.
    • Handle: RePEc:oup:ecinqu:v:25:y:1987:i:3:p:479-96
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    Cited by:

    1. Riera Prunera, Maria Carmen, 2000. "A Role For Deficit In Economic Growth," ERSA conference papers ersa00p335, European Regional Science Association.
    2. Karen Smith Conway, 1999. "Are Workers “Ricardian†? Estimating the Labor Supply Effects of State Fiscal Policy," Public Finance Review, , vol. 27(2), pages 160-193, March.
    3. Maria Carme Riera i Prunera, 2003. "Deficit, human capital and economic growth dynamics," Working Papers in Economics 102, Universitat de Barcelona. Espai de Recerca en Economia.

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