Fiscal Policies, Inflation and Capital Formation
AbstractThree ways of averting "excess saving" have been emphasized in both theory and practice. The thrust of the Keynesian prescription was to increase the government deficit to provide demand for the resources that would not otherwise be used for either consumption or investment. In this way, aggregate demand would be maintained by substituting public consumption for private consumption. A second alternative prescription was to reduce the private saving rate. Early Keynesians like Seymour Harris saw the new Social Security program as an effective way to reduce aggregate saving. The third type of policy, developed by JamesTobin, relies on increasing the rate of inflation and making money less attractive relative to real capital. In Tobin's analysis, the resulting increase in capital intensity offsets the higher saving rate and therefore maintains aggregate demand. This paper will examine ways of increasing capital intensity without raising the rate of inflation. The analysis will also show why, contrary to Tobin's conclusion, a higher rate of inflation may not succeed in increasing investors' willingness to hold real capital.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0275.
Date of creation: Aug 1978
Date of revision:
Publication status: published as Martin Feldstein. "Fiscal Policies, Inflation, and Capital Formation," in "Inflation, Tax Rules, and Capital Formation" University of Chicago Press (1983)
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Feldstein, Martin, 1980. "Fiscal Policies, Inflation, and Capital Formation," American Economic Review, American Economic Association, vol. 70(4), pages 636-50, September.
- Martin Feldstein, 1983. "Fiscal Policies, Inflation, and Capital Formation," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 61-80 National Bureau of Economic Research, Inc.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Martin Feldstein, 1983.
"Inflation, Tax Rules, and the Stock Market,"
in: Inflation, Tax Rules, and Capital Formation, pages 199-220
National Bureau of Economic Research, Inc.
- Martin Feldstein, 1978. "The Effect of Inflation on the Prices of Land And Gold," NBER Working Papers 0296, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.