How and When to Balance the Government Budget

Steven Pressman ()
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Steven Pressman: Colorado State University

Chapter Chapter 4 in Debates in Monetary Macroeconomics, 2022, pp 69-91 from Springer

Abstract: Abstract The doctrine of functional finance seeks to get around the argument that government deficit spending crowds out other forms of spending and has no positive economic benefit. Instead it holds that if people are willing to lend money to the government there should be no crowding out, a view that inspired modern monetary theory. This paper argues against these views and makes a case for cyclically balanced government budgets. Following Keynes, governments should run surpluses in good economic times and roughly equivalent deficits to stimulate the economy during recessions. Following Piketty, the paper opposes government budget deficits because of their distributional consequences. Taxing the rich is better than borrowing from them, except during times of recession.

Keywords: Ricardian Equivalence; Functional finance; Modern Monetary Theory; Cyclically balanced budget; Distributional impact of budget deficits (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-11240-9_4

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DOI: 10.1007/978-3-031-11240-9_4

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