Is government debt net wealth?

Robert Rowthorn

Japanese Economy, 2020, vol. 46, issue 4, 230-239

Abstract: MMT claims that government borrowing makes the private sector wealthier, thereby stimulating expenditure. Robert Barro famously denied this on the grounds that government borrowing leads eventually to higher tax rates. Rational agents will put funds aside to pay these future taxes and will not perceive themselves as wealthier. They will restrain their expenditure following a fiscal stimulus. Using a model inspired by Wynne Godley and Marc Lavoie, this article examines the conditions under which MMT is correct. The decisive factor is the amount of slack in the economy. The greater the amount of slack, the closer MMT is to reality.

Date: 2020
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DOI: 10.1080/2329194X.2020.1846131

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