Ricardo – Pigou Thesis:

According to it, if the government expense is financed by taxation, the first generation hands on to the second nothing but tax  receipts; if by bond issue, the first generation bequeaths the bonds to the second generation, but along with them, a tax liability represented by the annual charge on the debt for interest, and if the bonds are not perpetuities, for redemption or amortisation. The welfare of the second generation, however, depends not on whether it inherits tax receipt or government bonds, but on what it inherits in the way of real stock of capital; and this latter inheritance depends on the reaction of the first generation to the taking away of real resources by the government. The first generation is likely to cut its consumption more and investment less, if it receives only tax receipts from the government, than if it receives bonds, because it fails to give full weight to the task ahead of servicing the bonds.

This failure is due to the fact that no one individual can be sure of the amount of tax he will have to pay towards the servicing of the bonds each year in the future. Every individual may, therefore, persuade himself to believe that he is richer with the bonds with unidentified future tax obligations than he would be with tax receipts and no such future obligation. Hence in the bond financing case the individual, feeling richer, may cut his consumption less. As a result, a smaller amount of capital stock will be handed down to the second generation. The burden in this case consists in inheriting by the second generation a smaller amount of capital stock than  otherwise.