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Long-Run Effects of Debt versus Tax Financing

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  • Anibal Cavaco Silva

    (Gulbenkian Institute of Scientific Research and Instituto Superior de Economica, University of Lisbon)

Abstract

This paper reexamines Modigliani's remits of the long effects of an increment in public debt to finance a tax reduction or arising from a free distribution of government bonds Firstly, the effect of debt service on human and nonhuman wealth is introduced into the analysis. Secondly, it is shown that for the purpose of long-run debt analysis it is not legitimate to treat the cumulated change in saving as an equal change in net worth. This leads to a major correction of Modigliani's results.

Suggested Citation

  • Anibal Cavaco Silva, 1975. "Long-Run Effects of Debt versus Tax Financing," Public Finance Review, , vol. 3(4), pages 346-360, October.
    • Handle: RePEc:sae:pubfin:v:3:y:1975:i:4:p:346-360
    DOI: 10.1177/109114217500300403
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    References listed on IDEAS

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    1. Gardner Ackley, 1951. "The Wealth-Saving Relationship," Journal of Political Economy, University of Chicago Press, vol. 59(2), pages 154-154.
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