ABSTRACT
Ricardian doctrine denies the potency of deficit-financed compensatory fiscal policy. If deficit finance is ineffectual, it is also innocuous. It does not crowd out private capital formation or foreign investment. Taxes, apart from their effect on the after-tax return to capital, are assumed to deter all forms of asset accumulation. Fiscal conservatives, including politicians and laymen as well as economists, have long argued that debt finance irresponsibly burdens future generations for current government programs. In the long standing debate on internal public debt, some economists have argued that the burden of diverting resources to public use, the value of the contemporary private uses foregone, cannot be shifted in time. The chapter observes that almost all macro-econometric models for the United States economy continue to show significant multipliers for tax reductions or increases in transfer payments financed by non-monetary debt issue. James Buchanan fears, public debt issue permits the generation in power to shift tax burdens to generations without political voice.
