Consider the finance of an exogenous path of public expenditure, G (t), with taxes and public debt issues. In the absence of unexpected default, borrowing does not allow the government to escape taxes in a present-value sense. With lump-sum taxes, infinite horizons and perfect capital markets, the representative household cares only about the present value of taxes. It follows that households, willingly hold the extra government bonds issued to finance the tax cut, without any changes in market interest rates. The present value of taxes paid by domestic residents is invariant with a current budget deficit even if foreigners hold some debt. If the moral-hazard problem is serious enough to make the issue of G-contingent bonds unwise, then this problem would also be strong enough to make nominal bonds less attractive for the government than non-contingent real bonds.