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A game-theoretic analysis of fiscal policy under economic growth from the perspective of MMT

Yasuhito Tanaka

MPRA Paper from University Library of Munich, Germany

Abstract: We present a game-theoretic analysis of fiscal policy under economic growth from the perspective of MMT using a simple two-periods overlapping generations (OLG) model. We show the following results. 1) Sustained budget deficits are necessary to maintain full-employment under economic growth driven by technological progress. 2) An excessive budget deficit triggers inflation, and after one period inflation full-employment is maintained by sustained budget deficits with constant price. 3) Insufficient government deficit causes involuntary unemployment, and we need extra budget deficit over its steady state value to recover full-employment. These budget deficits need not be, and must not be redeemed. Therefore, if it is institutionally and legally possible, they should be financed by seigniorage not by public debt.

Keywords: Overlapping generations model; Full-employment; Budget deficit; Growth; MMT (search for similar items in EconPapers)
JEL-codes: E12 E24 (search for similar items in EconPapers)
Date: 2021-04-25
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-pke
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:107402

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