Final answer:
Governments opt to raise revenue through bonds instead of increasing taxes to spread the cost of long-term projects over generations and to avoid immediate economic impacts such as reduced consumption and investment. Bonds offer stable investment opportunities, whereas higher taxes may lead to reduced economic activity as in the principle of the Laffer Curve.
Step-by-step explanation:
The question regarding why the government raises revenue through bonds rather than simply increasing taxes is grounded in economic and political rationale. One main reason is to avoid the immediate reduction in disposable income that taxpayers would feel from a tax hike. Spreading the cost of large-scale projects like bridges or schools over generations through government borrowing using bonds makes the funding of such projects seem fairer since they are used over long periods.
Government bonds allow governments to finance current spending and are typically seen as a stable investment by bondholders. On the other hand, raising taxes has a direct impact on individuals and businesses, potentially reducing economic activity as behaviors such as consumption and investment might be discouraged. This is also supported by the Laffer Curve, which posits that beyond a certain point, higher tax rates could actually lead to reduced total revenue.
Choosing between taxation and sale of bonds is a strategic decision that weighs the immediate economic impact of tax increases against the long-term cost of interest payments. This decision is influenced by a variety of factors, including the current economic conditions, projected future needs, and the principle of intergenerational equity. Thus, the decision to raise revenue via bonds or taxes relies on intricate economic considerations and assessments of the public's potential response to tax changes.