The payment of interest on the public debt in the United States mildly increases income inequality.

Question

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When the government pays interest on the public debt, the majority of the interest goes to wealthy individuals and institutions who hold government bonds. This increases their income and wealth, while the poorer segments of society do not benefit from this interest payment. Therefore, interest payments on the public debt have a mild regressive effect on income distribution and increase income inequality in the United States.

The Payment of Interest on the Public Debt in the United