Swiss Journal of Economics and Statistics
The commonly held opinion is that credits taken by the government should rather be used for investive purposes than for consumption. However, from this it should not be concluded that public debt is an adequate instrument to finance public investment. Within a microeconomic based growth model it is shown that tax financed public investments causes an intergenerative redistribution towards future generations. This, however, does not suffice to justify a financing by credits. The opportunity costs of tax financed and credit financed public investments are compared within the steady state as well as within the transition. Financing public investment by credits is only justified if a considerable under-supply of public capital exist initially. In the long-run tax financing is superior.