 Sovereign currency and fiscal policyL. Randall Wray () Chapter 8 in Understanding Modern Money Theory, 2025, pp 175-205 from Edward Elgar Publishing Abstract: This chapter compares and contrasts the conventional view of fiscal policy with the MMT view. The first is based on the neoclassical household budget constraint—like a household, the government needs income (from tax revenue) or must borrow (sell bonds) to finance its spending. While the government can print money, this is likely to cause inflation without increasing the government's real purchasing power. Too much borrowing raises interest rates and raises the prospect of bankruptcy or being shut out of financial markets. The alternative view is based on a close examination of the procedures adopted to finance spending and application of Lerner's functional finance approach, as well as Wynne Godley's sectoral balance approach. The conclusion is that nations with sovereign currency systems do not face financial constraints—although they do face resource and political constraints. Both theory and evidence examined decisively reject the orthodox approach to government finance. Keywords: Government budget constraints; Functional finance; Burden of the debt; Sectoral balance; MMT; Sovereign currency; Budget deficits and debt; Debt sustainability; Government debt and deficit ratios; EMU and Maastricht criteria (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:elg:eechap:20168_8 Ordering information: This item can be ordered from Access Statistics for this chapter More chapters in Chapters from Edward Elgar Publishing |
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