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The monetary and fiscal nexus of neo-chartalism: A friendly critique

Listed author(s):
  • Marc Lavoie

    (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique, University of Ottawa [Ottawa])

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.

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Paper provided by HAL in its series Post-Print with number hal-01343744.

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Date of creation: Mar 2013
Publication status: Published in Journal of Economic Issues, Newfound Press, 2013, 47 (1), pp.1-32. <10.2753/JEI0021-3624470101>
Handle: RePEc:hal:journl:hal-01343744
DOI: 10.2753/JEI0021-3624470101
Note: View the original document on HAL open archive server: https://hal-univ-paris13.archives-ouvertes.fr/hal-01343744
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

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