Wealth Effects and Fiscal Policy in the Context of a Flexible Price Level

Yasuo Kofuji

Public Finance = Finances publiques, 1986, vol. 41, issue 2, 232-43

Abstract: In reexamining an earlier model by Fiorella Padoa Schippa, it is found that under a flexible price level and with wealth effects, (1) bond financing of public expenditure leads to instability, whereas money finance is always stable; (2) crowding-out of private by public expenditure is logically compatible with stability under bond but not under money finance; (3) if the system is stable, bond financing may create a larger or smaller real income compared with money finance, however, the wealth effects stemming from price level changes play an important role in the determination of these effects.

Date: 1986
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Persistent link: https://EconPapers.repec.org/RePEc:pfi:pubfin:v:41:y:1986:i:2:p:232-43

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