Bev Dahlby, Michael Smart
Provincial governments seem to consider it only natural to finance public infrastructure using debt. There is a standard arsenal of arguments used to justify the practice, to the point where there are scarcely any political voices willing to dissent from the tradition. Financing a bridge or school with debt is like a family buying a house, goes one common rationalization, or like a business taking out a loan for equipment. Others argue that infrastructure investment can stimulate the economy
more » ... pays for itself over time. Another justification insists that it is only fair for future generations to shoulder some of the burden of infrastructure purchased today, since they will continue to enjoy it after living generations are gone. Still another holds that debt financing infrastructure offers the necessary smoothing of the tax rate over time. These arguments are widely repeated and accepted as these arguments are, but under closer scrutiny they hold almost no water at all. On the contrary, the economic analysis casts doubts on financing infrastructure using debt. If provinces want to build more roads, bridges, schools, airports, hospitals, and other infrastructure, they would do taxpayers a much bigger favour by financing it through current income. † We would like to thank Paul Boothe and an anonymous referee for their comments on an earlier draft of this paper.