Debt and Taxes. An History of Innovation

The History of public debt is long and goes back to at least Classical Greece. Though marred by crises, it is mostly a history of innovation. Debt, an instrument that allows us to trade with our future selves, is one of the most important financial innovations in history. States have been among the main borrowers in history for a number of good reasons—from funding public goods to social infrastructure and providing a safety net against large shocks. But as individuals have problems of time inconsistency, so do states and that is reflected in an equally long history of debt crises. States tried to make debt credible by creating new taxes to fund it. The way governments tax has changed over time, partly to meet the needs of their growing debt stocks. Therefore, debt and taxes have had a symbiotic history. The architecture of financial markets was also profoundly influenced by the funding needs of governments and by the willingness of individuals and corporate entities to invest their portfolios in public debt. The debt of credible governments developed into one of the mainstays of financial markets by setting the ‘risk-free’ interest rate and by offering the easiest securities to pledge as collateral for new funding.This conference will showcase new research on key historical innovations—financial, legal, political—that made public debt the powerful instrument it is today. However, innovation is never a linear process, and there have been many cases of false starts and dead ends, as well as recoveries from fiscal crises.

Keynote: Sustained debt reduction: The Jamaica exception
with Professor Barry Eichengreen
26 September 2024, 17:00 – 19:45