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THE WELFARE COSTS OF DEFICIT FINANCE
Author(s) -
HANSSON INGEMAR,
STUART CHARLES
Publication year - 1987
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1987.tb00754.x
Subject(s) - economics , ricardian equivalence , welfare , general equilibrium theory , current account , monetary economics , asset (computer security) , macroeconomics , small open economy , fiscal policy , market economy , monetary policy , computer security , exchange rate , computer science
We analyze the welfare consequences of deficit finance in a general equilibrium model fit to the US. economy. Current spending may be financed with current and/or future distortionary taxes. The economy is open to international capital flows. The welfare costs of financing marginal current spending are substantial and are sensitive to the timing of the required taxes; postponing a tax on labor income is advantageous but postponing a tax on asset income is not. Ricardian equivalence poorly approximates the economy we consider.