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Disequilibrium and the Welfare-Maximising Levels of Government Spending, Taxation and Debt

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  • Rankin, Neil

Abstract

A "disequilibrium" framework, which extends that of R. J. Barro and H. I. Grossman_(1971) and E. Malinvaud_(1977) to include overlapping generations and dynamics due to perfect foresight and t he accumulation of bonds and capital, is used to determine when a welfare-maximizing fiscal policy requires a higher level of government spending than in Walras ian equilibrium. When deficits are permitted, optimum spending either equals the Walrasian optimum, or differs in a way depending arbitrarily on preferences. When a balanced budget is imposed, two situations which may justify spending clearly above the Walrasian optimum are: _(1) when capital accumulation is included;_(2) when spending provides utility to consumers. Copyright 1987 by Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 97 (1987)
Issue (Month): 385 (March)
Pages: 65-85

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Handle: RePEc:ecj:econjl:v:97:y:1987:i:385:p:65-85

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Cited by:
  1. Edward Nelson, 2003. "Money and the transmission mechanism in the optimizing IS-LM specification," Working Papers 2003-019, Federal Reserve Bank of St. Louis.
  2. Ganelli, G., 2000. "Useful Government Spending, Direct Crowding Out and Fiscal Policy Interdependence," The Warwick Economics Research Paper Series (TWERPS) 547, University of Warwick, Department of Economics.
  3. Yiannis Stournaras, 2005. "Aggregate Supply and Demand, the Real Exchange Rate and Oil Price Denomination," Working Papers 26, Bank of Greece.
  4. Miller, Marcus & Rankin, Neil & Zhang, Lei, 2012. "Borrowing from thy neighbour: a European perspective on sovereign debt," CAGE Online Working Paper Series 72, Competitive Advantage in the Global Economy (CAGE).

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