Public debt of Togo: an attempt to identify the explanatory factors

4.1.1.2 The different concepts of public debt

The different theoretical arguments of indebtedness will be classified into two concepts groups, and then will be presented the motives of indebtedness.

4.1.1.2.1 Classical and Keynesian views

Classics assimilate indebtedness to future tax and attribute a negative connotation to the State. According to Ricardo (1817)^8(*), citizens see in a loan a tax differed in the future/as time goes by.

They behave as if they were compelled to pay a tax later in order to repay this loan, whatever the intergenerational gap.

In other words, the behavior of economic agents is guided by an anticipation to tax increase.

However, a reservation may be made depending on the nature and quality of expenditures (transfer or investment expenditures) financed by the loan.

For Keynesians, indebtedness does not cause any charges either for future generations or for present ones because of the investments that it generates. In this approach, debt resulting in the boosting of the demand causes by the accelerating effect a more than proportional increase in investment, which in turn induces an increase in production.

The budget deficit which, led by successive flows to increase the stock of debt, produces the expansion of the economic cycle by demand and autonomous investments. The deficit to which the loan corresponds stimulates demand and can reduce the cost of repayment. This argument is plausible as underemployment of productive resources exist, according to Keynesian^9(*) theory.

4.1.1.2.2 The other conceptions

4.1.1.2.2.1 Alternative approaches to Keynesian theory

For proponents of this hypothesis^10(*), if in a country there are two parties that are potentially in position to access the power frequently these parties have different preferences regarding the nature of public spending. The ruling party may decide to increase public spending today by borrowing, in order to satisfy its electorate, at the best to remain on power and at the worst not to make life easier for its opponent. By so doing, it creates conditions so as to interfere further its political opponent in terms of managing the budget, if the latter were to gain power. It now undertakes future tax revenues and therefore reduces the potential future expense of its opponent especially if the debt happened to be significant.

4.1.1.2.2.2 The concept of the school of rational expectations

According to R. Barro (1974), a budget deficit policy financed by the loan has no stimulating effect on the economy, since the agents are not victims of fiscal illusion. These agents then anticipate an increase of the taxes intended to repay the loan by providing a savings equivalent to public debt (theorem of equivalence or of Barro- Ricardo)^11(*). Thus, whatever the modalities of financing deficits, the long-term effects are equivalent. This general proposition therefore means the neutrality of public debt in the long-term (fiscal and budget multiplier showing a trend toward zero).

According to Robert Lucas (1972), the idea of rational expectations is that the agents are able to take advantage of all available information to form their expectations, so that in stochastic average, they are not wrong.

* ⁸ David Ricardo, Principles of political economy and taxation, 1817

* ⁹ Quoted by Léonce YAPO (2001)

* ¹⁰ Quoted by Gervasio SEMEDO (2001)

* ¹¹ Quoted by Gervasio SEMEDO (2001)