The Express, November 14, Professor Patrick Minford
Every PhD student- and in fact most A-level students- know that government borrowing is an important policy instrument, which permits a government to do two beneficial things: first, to keep tax rates stable at levels fit for long-term growth, and second to allow swings in the budget balance to mitigate the business cycle.
Call these two things the ‘tax smoothing’ and ‘counter-cyclical policy’ functions of government. What they also know is that these functions must be carried out without violating the government’s solvency. The government has a ‘budget constraint’ and in the long run its debt must satisfy it.
But the word’s ‘long run’ here are vital. They mean that looking ahead, the government’s debt must always be reliably serviceable, so that it can be rolled over as needed.
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