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Volume 54, September/October 2019, Number 5 · pp. 297-303

Articles

About the Economic Psychology of Public Debt

Thomas Döring, Ruven D. Oehmke

From an economic point of view, public debt is a significant yet problematic instrument when it comes to generating government income. This insight is not solely based on the European government debt crisis, which followed the latest global economic and financial crisis in 2008/2009. Government debt crises are actually a recurring phenomenon throughout history affecting countries worldwide. Looking only at crises, it is easy to overlook the fact that public financing through borrowing is daily business. In fact, public debt is an attractive way to expand government activities. It allows policymakers to increase the fiscal scope for government spending beyond the current revenue generated by taxes and charges. Nevertheless, repayments and interest payments, which inevitably accompany government borrowing, can only be covered in the long run by increased tax revenues, especially if prolongation is not an option anymore. Therefore, public finance does not classify public debt as definitive government revenue such as taxes, fees and other non-tax revenue, but as a way of postponing taxation.

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This Intereconomics article is available for free at this page after an embargo period of two years. Reading it before October 2021 is possible via SpringerLink or in the next library.