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Disequilibrium and the Welfare-Maximising Levels of Government Spending, Taxation and Debt

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  • Rankin, Neil

Abstract

A "disequilibrium" framework, which extends that of R. J. Barro and H. I. Grossman_(1971) and E. Malinvaud_(1977) to include overlapping generations and dynamics due to perfect foresight and t he accumulation of bonds and capital, is used to determine when a welfare-maximizing fiscal policy requires a higher level of government spending than in Walras ian equilibrium. When deficits are permitted, optimum spending either equals the Walrasian optimum, or differs in a way depending arbitrarily on preferences. When a balanced budget is imposed, two situations which may justify spending clearly above the Walrasian optimum are: _(1) when capital accumulation is included;_(2) when spending provides utility to consumers. Copyright 1987 by Royal Economic Society.

Suggested Citation

  • Rankin, Neil, 1987. "Disequilibrium and the Welfare-Maximising Levels of Government Spending, Taxation and Debt," Economic Journal, Royal Economic Society, vol. 97(385), pages 65-85, March.
  • Handle: RePEc:ecj:econjl:v:97:y:1987:i:385:p:65-85
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    Cited by:

    1. Edward Nelson, 2004. "Money and the Transmission Mechanism in the Optimizing IS-LM Specification," History of Political Economy, Duke University Press, vol. 36(5), pages 271-304, Supplemen.
    2. Ganelli, Giovanni, 2003. "Useful government spending, direct crowding-out and fiscal policy interdependence," Journal of International Money and Finance, Elsevier, vol. 22(1), pages 87-103, February.
    3. Miller, Marcus & Rankin, Neil & Zhang, Lei, 2012. "Borrowing from thy neighbour: a European perspective on sovereign debt," CAGE Online Working Paper Series 73, Competitive Advantage in the Global Economy (CAGE).
    4. Yiannis Stournaras, 2005. "Aggregate Supply and Demand, the Real Exchange Rate and Oil Price Denomination," Working Papers 26, Bank of Greece.
    5. Karl Farmer, 2013. "Financial Integration and EMU's External Imbalances in a Two-Country OLG Model," Graz Economics Papers 2013-07, University of Graz, Department of Economics.
    6. repec:eee:joecas:v:6:y:2009:i:1:p:15-28 is not listed on IDEAS
    7. Karl Farmer, 2013. "EMU Imbalances in a Two-Country Overlapping Generations Model," EcoMod2013 5484, EcoMod.
    8. van der Ploeg, F., 1987. "Rationing in open economy and dynamic macroeconomics : A survey," Research Memorandum fd411b51-f487-4dde-a0e9-6, Tilburg University, School of Economics and Management.

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