A public debt theory is constructed in which the Ricardian invariance
theorem is valid as a first-order proposition but where the dependence
of excess burden on the timing of taxation implies an
optimal time path of debt issue. A central proposition is that deficits
are varied in order to maintain expect ed constancy in tax rates. This
behavior implies a positive effect on debt issue of temporary increases
in government spending (as in wartime) a countercyclical
response of debt to temporary income movements, and a one-to-one
effect of expected inflation on nominal debt growth. Debt issue
would be invariant with the outstanding debt-income ratio and,
except for a minor effect, with the level of government spending.
Hypotheses are tested on U.S. data since World WXar1 . Results are
basically in accord Fith the theory. It also turns out that a small set of
explanatory variables can account for the principal movements in
interest-bearing federal debt since the 1920s.
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