The public sector: the SM of fiscal and monetary policies

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Chapter 6 in The Supermultiplier, 2023, pp 93-113 from Edward Elgar Publishing

Abstract: Since Kahn, Kalecki and Keynes introduced in the 1930s the multiplier of fiscal policy, it has been shrouded in a cloud of confusion. Hopefully, this chapter will contribute to dispelling the fog. The SM of an increase in public expenditure may be presented in alternative ways (t is the tax rate and δP the share of the sovereign debt service). SM = 1/1 - c(1 - t) - h = 1/σ = 1/t + δP The model allows us to write the increase in income as the supermultiplier times the increase in public expenditure (∆Y = SM·∆G)). Income growth would be the growth of public expenditure times its weight in the vector of autonomous demand (Ŷ = Ĝ (G/Z)).Contrary to the general opinion, we conclude that the SM effect of fiscal policy does not depend on the way to finance the new public expenditure. The SM of a balanced budget is positive and higher than one. On the contrary, an increase in public expenditure for the purchase of non-produced goods (say, old buildings) has no multiplier effect.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2023
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