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Imports and the income-expenditure model: implications for fiscal policy and recession fighting

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Author Info

  • Thomas I. Palley

Abstract

This paper modifies the textbook income-expenditure model to properly account for imports. This modification causes government spending to have an even larger relative impact compared to tax cuts than conventionally thought. It also shows that increased government spending can have a smaller impact on the trade deficit than tax cuts despite spending having a larger multiplier effect on income. Consequently, spending may be doubly advantaged over tax cuts as a means of reflating economic activity. Last, the paper shows that consumption tax cuts can be an antistimulus that reduces aggregate demand and output.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 32 (2009)
Issue (Month): 2 (December)
Pages: 311-322

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Handle: RePEc:mes:postke:v:32:y:2009:i:2:p:311-322

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348

Related research

Keywords: fiscal policy; imports; income-expenditure model; multiplier;

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Cited by:
  1. Kazimierz Łaski & Jerzy Osiatyński & Jolanta Zięba, 2012. "Fiscal multipliers and factors of growth in Poland and the Czech Republic in 2009," National Bank of Poland Working Papers 117, National Bank of Poland, Economic Institute.
  2. Kazimierz Laski & Jerzy Osiatynski & Jolanta Zieba, 2010. "The Government Expenditure Multiplier and its Estimates for Poland in 2006-2009," wiiw Working Papers 63, The Vienna Institute for International Economic Studies, wiiw.

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