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Limitations of the Government Budget Constraint: Users vs. Issuers of the Currency

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  • Stephanie Kelton

    () (University of Missouri - Kansas City, USA)

Abstract

The financial crisis and ensuing economic meltdown has led to sharp increases in the deficits and debt levels of many advanced economies. The run-up in public sector indebtedness helped to restore private sector balance sheets, laying the foundation for economic recovery in these regions. But the so-called “sovereign” debt crisis in the Eurozone has undermined the fiscal resolve that has, thus far, kept truly sovereign governments from slipping into a bona fide depression. Fearful of becoming the next Greece, governments that could allow an unlimited fiscal adjustment to restore full employment, are methodically weakening their fiscal support mechanisms and setting themselves on a path to becoming the next Japan.

Suggested Citation

  • Stephanie Kelton, 2011. "Limitations of the Government Budget Constraint: Users vs. Issuers of the Currency," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(1), pages 57-66, March.
  • Handle: RePEc:voj:journl:v:58:y:2011:i:1:p:57-66
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    File URL: http://www.panoeconomicus.rs/casopis/2011_1/Clanak4.pdf
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    References listed on IDEAS

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    1. J.A. Kregel, 1999. "Currency Stabilization through Full Employment: Can EMU Combine Price Stability with Employment and Income Growth?," Eastern Economic Journal, Eastern Economic Association, vol. 25(1), pages 35-47, Winter.
    2. Thomas Laubach, 2009. "New Evidence on the Interest Rate Effects of Budget Deficits and Debt," Journal of the European Economic Association, MIT Press, vol. 7(4), pages 858-885, June.
    3. Goodhart, Charles A. E., 1998. "The two concepts of money: implications for the analysis of optimal currency areas," European Journal of Political Economy, Elsevier, vol. 14(3), pages 407-432, August.
    4. Jagadeesh Gokhale & Kent Smetters, 2006. "Fiscal and Generational Imbalances: An Update," NBER Chapters,in: Tax Policy and the Economy, Volume 20, pages 193-223 National Bureau of Economic Research, Inc.
    5. Eric M. Engen & R. Glenn Hubbard, 2005. "Federal Government Debt and Interest Rates," NBER Chapters,in: NBER Macroeconomics Annual 2004, Volume 19, pages 83-160 National Bureau of Economic Research, Inc.
    6. Martin Feldstein, 1986. "Budget Deficits, Tax Rules, and real Interest Rates," NBER Working Papers 1970, National Bureau of Economic Research, Inc.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Where James K. Galbraith Slays the IGBC Bogeyman
      by Tom Hickey in Mike Norman Economics on 2011-05-06 03:27:00

    Citations

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    Cited by:

    1. Jörg Bibow, 2013. "Lost at Sea: The Euro Needs a Euro Treasury," IMK Studies 35-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    2. Hansjörg Herr, 2014. "The European Central Bank and the US Federal Reserve as Lender of Last Resort," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(1), pages 59-78, Februar.
    3. repec:cbu:jrnlec:y:2017:v:6:p:177-182 is not listed on IDEAS
    4. repec:voj:journl:v:64:y:2017:i:1:p:61-76 is not listed on IDEAS
    5. Timothy Sharpe & Martin Watts, 2013. "Unconventional Monetary Policy in the UK: A Modern Money Critique," Economic Issues Journal Articles, Economic Issues, vol. 18(2), pages 41-64, September.

    More about this item

    Keywords

    Fiscal policy; Deficit; Sovereign risk;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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