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Budget Deficit to Achieve and Maintain Full-employment Under Growth by Technological Progress

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  • Tanaka, Yasuhito

Abstract

The purpose of this paper is to show, using a simple two-periods overlapping generations (OLG) model in which goods are produced solely by labor in a monopolistically competitive industry, that a continuous budget deficit is necessary to maintain full-employment under economic growth driven by autonomous technological progress. Since the budget deficit must be continuous, it should be financed by seigniorage not by public debt. Also we will show that to achieve full employment in the presence of involuntary unemployment we need extra budget deficit. Budget deficit is necessary under growth because of deficiency of the savings of the older generation. These budget deficits are not debt and do not need to be redeemed. The money supply equals the savings. An increase in the money supply equals an increase in the savings. It equals the budget deficit. The rate of an increase in the savings equals the growth rate and therefore budget deficit does not cause inflation.

Suggested Citation

  • Tanaka, Yasuhito, 2021. "Budget Deficit to Achieve and Maintain Full-employment Under Growth by Technological Progress," MPRA Paper 107220, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:107220
    as

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    References listed on IDEAS

    as
    1. Masayuki Otaki, 2015. "Price Theory in a Monetary Economy," Advances in Japanese Business and Economics, in: Keynesian Economics and Price Theory, edition 127, chapter 2, pages 15-41, Springer.
    2. Otaki, Masayuki, 2007. "The dynamically extended Keynesian cross and the welfare-improving fiscal policy," Economics Letters, Elsevier, vol. 96(1), pages 23-29, July.
    3. Yasuhito Tanaka, 2020. "Involuntary unemployment with indivisible labor supply under perfect competition," Economics Bulletin, AccessEcon, vol. 40(3), pages 1914-1923.
    4. Otaki, Masayuki, 2009. "A welfare economics foundation for the full-employment policy," Economics Letters, Elsevier, vol. 102(1), pages 1-3, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    overlapping generations model; budget deficit; full-employment; growth;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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