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Functional finance and intergenerational distribution in neoclassical and Keynesian OLG models

Author

Listed:
  • Peter Skott

    (Department of Economics, University of Massachusetts Amherst, USA and Aalborg University, Denmark)

  • Soon Ryoo

    (Department of Finance and Economics, Adelphi University, Garden City, NY, USA)

Abstract

This paper examines the role of fiscal policy in a Keynesian OLG model. We show that (i) dynamic inefficiency in a neoclassical OLG model generates aggregate demand problems in a Keynesian version of the model, (ii) fiscal policy can be used to achieve full-employment growth, (iii) the required debt ratio is inversely related to both the growth rate and government consumption, and (iv) a simple and distributionally neutral tax scheme can maintain full employment in the face of variations in 'household confidence.'

Suggested Citation

  • Peter Skott & Soon Ryoo, 2017. "Functional finance and intergenerational distribution in neoclassical and Keynesian OLG models," Review of Keynesian Economics, Edward Elgar Publishing, vol. 5(1), pages 112-134, January.
    • Handle: RePEc:elg:rokejn:v:5:y:2017:i:1:p112-134
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    Citations

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    Cited by:

    1. Santiago J. Gahn, 2022. "Towards an explanation of a declining trend in capacity utilisation in the US economy," Working Papers PKWP2214, Post Keynesian Economics Society (PKES).
    2. Di Bucchianico, Stefano, 2020. "Discussing Secular Stagnation: A case for freeing good ideas from theoretical constraints?," Structural Change and Economic Dynamics, Elsevier, vol. 55(C), pages 288-297.

    More about this item

    Keywords

    public debt; Keynesian OLG model; secular stagnation; structural liquidity trap; dynamic efficiency; confidence;
    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
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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