chat

Cities are financially constrained (unlike the Feds) so if the city wants to fund something useful for the public (like free bus), they have to issue bonds if in deficit, they are actually borrowing money.

Of course, taxing the rich is always preferable as it reduces interest payments for the financially constrained city which may be forced to cut spending if interest payments become too much. But even borrowing by issuing bonds can be a solution (it's better mobilization of rich peoples' hoards) if higher taxes on hoarders isn't possible (due to political situation) since tax revenues tend to go up over time depending on economic activity (because of Federal Govt deficits and bank credit creation) and inflation so the debt service becomes lower. All of this depends on the interest rate. Though taxing the rich is always better looking at it from city's perspective, the rich peoples' hoards are better used by the city/state Government (except for the police and all).

I was reading this book yesterday and found something new, Chapter 23 by Michael Hudson where Canadian provinces went so far as to borrow in foreign currencies with lower interest rates but with exchange rate risk and ended up paying 25% rates effectively.