财政第十版课后答案20

Part 5 – The United States Revenue System

Chapter 20 – Deficit Finance

Brief Outline

1.How Big is the Debt?

a.Interpreting Deficit and Debt Numbers

b.Summing Up

2.The Burden of the Debt

a.One Hand Borrows from the Other

b.An Overlapping Generations Model

c.Neoclassical Model

d.Ricardian Model

e.Overview

3.To Tax or To Borrow?

a.Benefits-Received Principles

b.Intergenerational Equity

c.Efficiency Considerations

d.Deficits and Functional Finance

e.Federal Debt and the Risk of a Fiscal Crisis

f.Moral and Political Considerations

g.Controlling the Deficits

h.Overview

Suggested Answers to End of Chapter Questions

1.

a.The government borrowing to finance a Memorial Day parade increases the

national debt. In designing an accounting system for the government, the

borrowing in this case should, in fact, increase the national debt.

b.The sale of the Statue of Liberty to private entrepreneurs would decrease the

national debt under current measurement. In the discussion on capital spending,

the exercise here is similar to the sale of nondefense federal buildings in 2002. In

designing an accounting system, this transaction is simply an exchange of assets

and should have no effect on the debt, rather than decreasing the debt. The

current system ignores tangible assets.

c.The law promising free (future) medical care to children under five affects future

spending, not current spending. As such, it does not affect the current

measurement of the debt. This is similar to the discussion of the implicit

legislative promises about Social Security. In designing an accounting system,

the present value of the entitlement should be counted as a current expense, so the

debt should increase. The current system ignores implicit obligations.

d.The $100 tax would reduce the size of the national debt. The implicit promise to

pay Lynne back $105 next year does not increase the size of the debt, assuming

this is similar to the implicit promise to pay Social Security in the future. In

designing an accounting system, again, this implicit promise should be counted.

Chapter 20 – Deficit Finance Assuming the present discounted value of the of the $105 paid back next year

equals the $100 tax this year, then the impact on the debt should be zero, rather

than to decrease it.

e.The $100 bond would increase the size of the national debt. The present value of

these payments is the amount by which the bond contributes to the debt. In

designing an accounting system for the government, the borrowing in this case

should, in fact, increase the national debt.

2.Greece’s government owns tangible assets. Selling the gold mig ht give the appearance of

temporarily reducing the current year deficit, but is not a sensible long-term strategy.

Also, it is exchanging one asset for another, so in reality, it is not changing anything.

3.The arrival of surpluses in the late 1990s and the subsequent spending spree are

consistent wit h Milton Friedman’s view of deficits and government spending. His view is that, “What is predetermined is not spending but the politically tolerable deficits.”

Since the deficit is fixed, increases in revenue lead to one-to-one increases in spending. 4.If the elasticity is zero, then taxing labor markets creates no distortion in workers’ labor-

leisure decisions. This suggests tax finance would have a smaller excess burden.

5.Whether or not the burden of the debt is borne by future generations is controversial.

One view is that an internal debt creates no net burden for future generations because it is simply an intragenerational transfer. However, in an overlapping generations model, debt finance can produce a real burden on future generations. The burden of the debt also depends on whether debt finance crowds out private investment. If it does, future generations have a smaller capital stock and, hence, lower real incomes, all other things equal. In a Ricardian model, voluntary transfers across generations undo the effects of debt policy, so crowding out does not occur.

6.The benefits-received principle, which states that the beneficiaries of a particular

government spending program should pay for it, suggests that deficit finance is appropriate for mitigating an existing economic crisis if the benefits are received by future generations. An efficiency standpoint would say that debt is appropriate if the expenditure is temporary, and there are not major pre-existing distortions in capital markets.

7.The Ricard ian equivalence models states that the “old” generation cares about the young

generation and see that government borrowing will hurt the young generation. Therefore, they will mitigate the future higher taxes by providing bequests to offset. This observation is a restatement of the Ricardian equivalence model.