PUBLIC DEBT

obligations of governments, particularly those evidenced by securities, to pay certain sums to the holders at some future time. Public debt is distinguished from private debt, which consists of the obligations of individuals, business firms, and nongovernmental organizations. The debt owed by national governments is usually referred to as the national debt and is thus distinguished from the public debt of state and local government bodies. In the United States, bonds issued by the states and local governments are known as municipals. In the United Kingdom, debt or loans incurred by local authorities are referred to as corporation, or county, loans, thus distinguishing them from central government debt, which is frequently referred to simply as funds. In the past, paper money was frequently regarded in the United States as a portion of the public debt, but in more recent years money has been regarded as a distinct type of obligation, in part because paper money is usually no longer payable in gold, silver, or other specific items of intrinsic value. Public debt is an obligation of a government; and, although individuals are called upon in their capacity as taxpayers to provide funds for payment of interest and principal on the debt, their own property cannot be attached to meet the obligations if the government fails to do so. Similarly, government property normally cannot be seized to meet these obligations. With sovereign governments, the debt holders can take only such legal action to enforce payment as the governments themselves prescribe. Forms of public debt can be classified in a number of different ways: (1) according to maturity, as short-term (maturing in less than five years, often in a matter of weeks) or long-term (maturing in more than five years, up to an indefinite period), (2) by type of issuer, as direct obligations (issued and backed by the government), contingent obligations (issued typically by a governmental corporation or other quasi-governmental body but guaranteed by the government), or revenue obligation (backed by anticipated revenues from government-owned commercial enterprises such as toll highways, public utilities, or transit systems, and not by taxes), (3) by location of the debt, as internal (held within the government's jurisdiction) or external (held by a foreign jurisdiction), or (4) according to marketability, as negotiable securities (marketable) or nonnegotiable securities (such as the low-denomination U.S. savings bonds). Much debate has centred on such questions as how large the national debt may safely be allowed to grow, how and when public debt should be retired, what effects public borrowing has on the economy, and even whether governments should borrow at all or should finance all expenditures out of current revenues. In general it has been felt that debt financing is appropriate when the tax burden of current financing for certain circumstances would be practically or politically infeasible; examples are, for national governments, war, and, for local governments, large capital projects such as highways, schools, and so on. The level of public debt varies from country to country, from less than 10 percent of the gross national product (GNP) to more than double the GNP. Public borrowing is generally believed to have an inflationary effect on the economy and for that reason is often resorted to in recessionary periods to stimulate consumption, investment, and employment.