Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- Preface
- List of conference participants
- 1 Introduction
- 2 The efficient design of public debt
- 3 Indexation and maturity of government bonds: an exploratory model
- 4 Public confidence and debt management: a model and a case study of Italy
- 5 Confidence crises and public debt management
- 6 Funding crises in the aftermath of World War I
- 7 The capital levy in theory and practice
- Discussion
- 8 Episodes in the public debt history of the United States
- 9 The Italian national debt conversion of 1906
- 10 Fear of deficit financing – is it rational?
- 11 Government domestic debt and the risk of default: a political–economic model of the strategic role of debt
- Index
Discussion
Published online by Cambridge University Press: 05 July 2011
- Frontmatter
- Contents
- List of figures
- List of tables
- Preface
- List of conference participants
- 1 Introduction
- 2 The efficient design of public debt
- 3 Indexation and maturity of government bonds: an exploratory model
- 4 Public confidence and debt management: a model and a case study of Italy
- 5 Confidence crises and public debt management
- 6 Funding crises in the aftermath of World War I
- 7 The capital levy in theory and practice
- Discussion
- 8 Episodes in the public debt history of the United States
- 9 The Italian national debt conversion of 1906
- 10 Fear of deficit financing – is it rational?
- 11 Government domestic debt and the risk of default: a political–economic model of the strategic role of debt
- Index
Summary
As always, Barry Eichengreen has given us a well argued paper which uses modern ideas to illuminate historical debates and brings interesting, and unfamiliar, evidence from the past to bear on current theoretical analysis.
His subject is the capital levy, a ‘once off’ tax on capital. Should such a tax be viewed as lump-sum, it will have attractive incentive properties relative to alternative, distortionary, means of raising the same revenue. However this conclusion may be overoptimistic, and modern economics formalises some possible objections.
The literature on time-inconsistency alerts us to the problem that in the future there will again be a temptation to invoke such a tax; foreseeing this, the private sector will impute marginal tax rates on what it regards as a recurrent tax. In such circumstances, as Eichengreen notes, it is possible that a capital levy actually raises the cost of debt service by increasing the ex ante interest rate demanded by lenders. This conclusion may be reinforced by applying the idea of repeated games in which the private sector punishes the government for its default on previous implicit commitments, where punishment takes the form of penalty interest rates following a default or an unanticipated capital levy.
Against this background, Eichengreen explores a more sophisticated idea, viewing debt as a contingent claim. Within the state-contingent approach, the rate of capital taxation and hence the post-tax rate of return depends on the state of nature which arises.
- Type
- Chapter
- Information
- Public Debt ManagementTheory and History, pp. 221 - 228Publisher: Cambridge University PressPrint publication year: 1990