A Tax on Debt?

Certain economists, most notably Harvard professor Gregory Mankiw, have long advocated so-called Pigovian taxes aimed at discouraging pollution and other socially costly activities. Now two academics are suggesting such a tax might be applied to a dangerous behavior that has become popular in the U.S.: Taking on too much debt.

… We could all be better off if, during booms, the government placed a tax of 0.56% on the borrowings of small and medium-sized businesses, and 0.48% on the borrowings of U.S. households. The tax would fall to zero in busts.

… a tax on debt wouldn’t be unprecedented. Chile, for example, has long levied a tax on short-term foreign loans as part of a broader effort to limit speculative capital flows. The jury is still out, but some economists believe the measures have helped protect Chile from the kind of foreign-investor panics that tend to hit emerging economies.

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Should Government Tax Debt?