Argument Against Public Debt:

Public debt has several disadvantages such as:

(i) Problem of debt financing:

If public debt is financed by selling bond to the public, it tends to crowd out private investment. This may lead to loss of employment opportunities and income.

(ii) Problem of debt servicing:

Government may result to increasing taxation to be able to pay interest on the loan and the principal to the creditors. This may reduce work and investment incentives

(iii) Inflationary potential:

The expectation that loan facilities are readily available may tempt the government into undertakings that are inflationary and economically unviable.

(iv) Distortion of income distribution:

Debt services and positive rate of interest would enhance the economic status of bondholder. During the period of unanticipated inflation, government (as the debtor) tends to gain at the expense of the public holders of government securities.