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Finance in a Classical and Harrodian Cyclical Growth Model

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  • Jamee K. Moudud

    (The Jerome Levy Economics Institute)

  • Ajit Zacharias

    (The Jerome Levy Economics Institute)

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    Abstract

    This paper addresses two broad questions. The first one relates to the economic rationale for the existence of the welfare state. To address this question, we review the marginalist arguments and then counterpose a historical and institutional analysis of the rise of the U.S. welfare state. The second question concerns the macroeconomic impacts of welfare spending. We examine the standard neoclassical macroeconomic arguments for and against welfare cutbacks and then propose an alternative growth framework, rooted in the classical and Harrodian traditions, to evaluate social policy. We argue that the alternative framework provides both demand-side and supply-side mechanisms whereby social spending can be supported without harmful long-run macroeconomic effects. Our analysis suggests that, in general, because growth and crises are endogenous, there may be no tension between social policy and economic performance. Specifically, the recent cutbacks in the U.S. are hard to justify on purely economic grounds.

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    File URL: http://128.118.178.162/eps/mac/papers/0004/0004037.pdf
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    Bibliographic Info

    Paper provided by EconWPA in its series Macroeconomics with number 0004037.

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    Length: 58 pages
    Date of creation: 12 Oct 2000
    Date of revision:
    Handle: RePEc:wpa:wuwpma:0004037

    Note: Type of Document - Adobe Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 58; figures: included
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    Web page: http://128.118.178.162

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    1. James Tobin & Michael Haliassos, 1988. "The Macroeconomics of Government Finance," Cowles Foundation Discussion Papers 888, Cowles Foundation for Research in Economics, Yale University.
    2. Sharon J. Erenburg, 1993. "The Relationship Between Public and Private Investment," Economics Working Paper Archive wp_85, Levy Economics Institute.
    3. A. B. Atkinson, 1999. "The Economic Consequences of Rolling Back the Welfare State," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011719, December.
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