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Tax reduction for full-employment and debt dynamics: A Keynesian analysis by mathematics and simulation

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  • Tanaka, Yasuhito

Abstract

We examine the effects of a fiscal policy by tax reduction which realizes full-employment from a state of under-employment or with deflationary GDP gap. We show that the larger the growth rate of real GDP by tax reduction is, the smaller the debt-to-GDP ratio at the time when full-employment is realized is, and an aggressive fiscal policy by tax reduction for full-employment can reduce the debt-to-GDP ratio. Therefore, full-employment can be realized with smaller debt-to-GDP ratio than before the tax reduction policy. However, for this result we need that the marginal propensity to consume is considerably large.

Suggested Citation

  • Tanaka, Yasuhito, 2019. "Tax reduction for full-employment and debt dynamics: A Keynesian analysis by mathematics and simulation," MPRA Paper 95912, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:95912
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    File URL: https://mpra.ub.uni-muenchen.de/95912/1/MPRA_paper_95912.pdf
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    References listed on IDEAS

    as
    1. Martin Watts & Timothy Sharpe, 2013. "Immutable laws of debt dynamics," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 36(1), pages 59-84.
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    More about this item

    Keywords

    tax reduction; full-employment; debt-to-GDP ratio; continuous and discrete time debt dynamics;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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