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On the irrelevance of government debt when taxes are distortionary |
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| Authors: | Marco Bassetto Narayana Kocherlakota |
| Institution: | a Department of Economics, University of Minnesota, 271 19th Avenue South, Minneapolis, MN 55455, USA b Federal Reserve Bank of Minneapolis, Minneapolis, MN 55401, USA c Department of Economics, Stanford University, Stanford, CA 94305, USA d National Bureau of Economic Research, Cambridge, MA 02138, USA |
| Abstract: | We consider a government that can only raise funds by levying distortionary taxes. We allow the government to collect taxes in a given period that are based on incomes earned in previous periods. We show that once we do so, given any debt path, the government can adjust its tax policy so as to attain that debt path without affecting equilibrium allocations or prices. |
| Keywords: | E62 H62 H63 |
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