Multiplier Theory and Public Goods: Macroeconomics of the Mixed System

Michihiro Ohyama
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Michihiro Ohyama: Keio University

Chapter Chapter 1 in Macroeconomics, Trade, and Social Welfare, 2016, pp 3-20 from Springer

Abstract: Abstract Since the collapse of the Bubble in the early 1990s, the expenditures of the government of Japan have continued to expand for more than 20 years, but have failed to improve business conditions, leaving the national rate of unemployment at high levels. In the meantime, the government deficit increased and consequently the balance of the government bond accumulated enormously. This experience cast doubt on the effectiveness of fiscal policy intended to increase the aggregate income and employment in Japan. The Keynesian multiplier theory that originated in the midst of the great depression of the 1930s has served as the cornerstone of fiscal policy in the standard textbooks for a long time. It emphasized multiplier effects of government deficit expenditure on national income and employment, symbolizing the Keynesian revolution in the history of macroeconomic policy. The recent experience of the stagnation of Japan and other countries, however, has revealed that the multiplier effect was not so large as believed in the past. Moreover, frequent use of fiscal policy undermined government fiscal discipline, giving rise to inefficient resource allocation in Japan as well as in many other countries.

Keywords: Public Good; Fiscal Policy; Government Expenditure; Private Good; Full Employment (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advchp:978-4-431-55807-1_1

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DOI: 10.1007/978-4-431-55807-1_1

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