On the irrelevance of government debt when taxes are distortionary$

We consider a government that can only raise funds by levying distortionary taxes. We allow the government to collect taxes in a given periodthat are basedon incomes earned in previous periods. We show that once we do so, given any debt path, the government can adjust its tax policy so as to attain that debt path without affecting equilibrium allocations or prices. r 2003 Elsevier B.V. All rights reserved.