The federal tax structure determines the distribution effects. A Transfer of Purchasing Power - Federal debt causes a transfer of purchasing power from the private sector to the public sector. As a rule, the larger the public debt, the larger the interest payments, hence the more taxes needed to pay them. As a result, the public has less money to spend on their own needs. Individuals and businesses might feel less inclined to work harder and earn extra income if higher taxes will be placed on them.
Many people feel that the government spends taxpayers' money in a heedless manner.
If people feel that their taxes are being squandered, they are less likely to save and invest. Higher Interest Rates - When the government sells bonds to finance the deficit, it competes with the private sector for scarce resources. At times there is the crowding-out effect Private borrowers are forced to pay the higher rates or leave the market. The increased demand for money causes the interest rate to go up. This increases forces borrowers to either pay higher rates, or to stay out of the market.