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The Monetary and Fiscal Nexus of Neo-Chartalism: A Friendly Critique


  • Marc Lavoie


A number of post-Keynesian authors, called the neo-chartalists, have argued that the government does not face a budget constraint similar to that of households and that government with sovereign currencies run no risk of default, even with high debt-to-GDP ratio. This stands in contrast to countries in the eurozone, where the central bank does not normally purchase sovereign debt. While these claims now seem to be accepted by some economists, neo-chartalists have also made a number of controversial claims, including that the government spends simply by crediting a private-sector-bank account at the central bank; that the government does need to borrow to deficit-spend; and that taxes do not finance government expenditures. This paper shows that these surprising statements do have some logic, once one assumes the consolidation of the government sector and the central bank into a unique entity, the state. The paper further argues, however, that these paradoxical claims end up being counter-productive since consolidation is counter-factual.

Suggested Citation

  • Marc Lavoie, 2013. "The Monetary and Fiscal Nexus of Neo-Chartalism: A Friendly Critique," Journal of Economic Issues, Taylor & Francis Journals, vol. 47(1), pages 1-32.
  • Handle: RePEc:mes:jeciss:v:47:y:2013:i:1:p:1-32 DOI: 10.2753/JEI0021-3624470101

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    Cited by:

    1. Sergio Cesaratto, 2016. "La financiación inicial y final en el circuito monetario y la teoría de la demanda efectiva," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 18(35), pages 47-78, July-Dece.
    2. Eric Tymoigne & L. Randall Wray, 2013. "Modern Money Theory 101: A Reply to Critics," Economics Working Paper Archive wp_778, Levy Economics Institute.
    3. Hein, Eckhard & Dodig, Nina & Budyldina, Natalia, 2014. "Financial, economic and social systems: French Regulation School, Social Structures of Accumulation and Post-Keynesian approaches compared," IPE Working Papers 34/2014, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    4. Riccardo Bellofiore, 2014. "The Great Recession and the contradictions of contemporary capitalism," Chapters,in: The Great Recession and the Contradictions of Contemporary Capitalism, chapter 1, pages 7-25 Edward Elgar Publishing.
    5. Hein, Eckhard, 2016. "Post-Keynesian macroeconomics since the mid-1990s: Main developments," IPE Working Papers 75/2016, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    6. Eric Tymoigne, 2014. "Modern Money Theory and Interrelations between the Treasury and the Central Bank: The Case of the United States," Economics Working Paper Archive wp_788, Levy Economics Institute.
    7. repec:bla:metroe:v:68:y:2017:i:2:p:228-258 is not listed on IDEAS

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