>If you run, say, a deficit of 2% of GDP (revs = 18%, exp = 20%), in an economy growing at 5% a year, and roll over the old debt and issue new to fund the deficit, you end up with a debt/GDP ratio of 30% after 25 years (if you start year 0 with no debt). Debt service climbs steadily from 0% to 1.5% of GDP. Aren't there better uses for 1.5% of GDP?
>But bond interest is an upward redistribution - see the Reagan years. Tax to spend can be a downward redistribution, if you spend it right. >Doug
If the rich invest in gov bonds instead of corp bonds, what is the increase in their wealth by virtue of that decision? Abstracting from risk, I would say none. And if there is none, how can there be redistribution?
Conversely, we could imagine the public sector borrowing at six percent and investing at eight. Is that redistribution?
Or: the gov borrows at six and to pay for granny's gall bladder. What is the redistribution in that case? Do you want to elevate the discounted value of an infinite stream of payments (debt-service) over Granny in the here and now?
Borrowing is just displacement of tax payments to a different time period. Redistribution depends on what you buy with the proceeds.