GOVERNMENT DEBT, INCOME-DISTRIBUTION AND GROWTH

This paper takes up the question of whether government debt worsens th e distribution of income as tax revenues from workers are used to pay for the interest on the debt held by the rich. In so doing, we develop a post-Keynesian model in which growth is determined by aggregate dem and rather than by the supply of resources and income is distributed b etween workers who earn wages and capitalists who receive profit and i nterest income. Our analysis highlights the possible expansionary effe ct of a rise in government debt which may raise the income of the work ers, and it shows that its precise effect on income inequality depends on the circumstances under which government debt rises. (C) 1996 Acad emic Press Limited