Deficit Spending, Expectations, and Fiscal Policy Effectiveness

Richard Cebula ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops a formal theoretical model within which it investigates mathematically the policy implications of adverse business expectations involving deficit financing. It is found that hostility towards deficit financing will always diminish the effectiveness of fiscal policy and render the ultimate impact of fiscal policy indeterminate. Potentially, a fiscal policy aimed at expansion may lead to a perverse final effect: a decline in economic activity. The model constructed allows deficit financing to influence the money supply.

Keywords: budget deficit; fiscal policy effectiveness; business expectations (search for similar items in EconPapers)
JEL-codes: E17 H32 H62 H69 (search for similar items in EconPapers)
Date: 1972-03-14
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Published in Public Finance/Finances Publiques 3-4.28(1973): pp. 362-370

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Journal Article: Deficit Spending, Expectations, and Fiscal Policy Effectiveness (1973)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:52328

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