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CHAPTER 20

CHAPTER 20. DEFICIT FINANCE. How Big is the Deficit?. Deficit Surplus On-budget deficit Off-budget deficit. How Big is the Deficit?. How Big is the Debt? . National (Public) Debt Stocks v Flows. How Big is the Debt?. Interpreting Deficit, Surplus, and Debt Numbers.

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CHAPTER 20

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  1. CHAPTER 20 DEFICIT FINANCE

  2. How Big is the Deficit? • Deficit • Surplus • On-budget deficit • Off-budget deficit

  3. How Big is the Deficit?

  4. How Big is the Debt? • National (Public) Debt • Stocks v Flows

  5. How Big is the Debt?

  6. Interpreting Deficit, Surplus, and Debt Numbers • Government Debt held by the Federal Reserve Bank • State and Local Government • Effects of Inflation • inflation tax • Capital versus Current Accounting • Tangible Assets • Implicit Obligations • Summing Up

  7. The Burden of the Debt • Statutory versus Economic Incidence • Lerner’s View • Internal Debt • External Debt

  8. Overlapping Generations Model

  9. Generational Accounting • Computation of Net Tax • PV of transfers received – PV of taxes paid

  10. Neoclassical Model • Crowding Out Hypothesis • Empirical testing of the hypothesis

  11. The Ricardian Model • Intergenerational transfers • Form of Finance is irrelevant • Empirical evidence

  12. To Tax or to Borrow • Benefits-Received Principle • Intergenerational Equity • Efficiency Considerations • χ = ½εLt2 • Macroeconomic Considerations • Functional finance • Moral and Political Considerations

  13. Present Value of Tax Payments Under Alternative Taxing/Borrowing Decisions

  14. To Tax or To Borrow ExcessBurden χ2 χ1 t 2t Tax rate

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