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Government Spending and the Income-Expenditure Model: The Multiplier, Spending Composition, and Job Guarantee Programs

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  • Thomas Palley

Abstract

This paper reconstructs the income - expenditure (IE) model to include a distinction between government purchases of output versus government production. The distinction has important consequences for output and employment multipliers. The paper also extends the IE model to incorporate a government job guarantee program (JGP), and the extended model illuminates the automatic stabilizer properties of a JGP. The model is then extended to include Kaleckian income distribution effects. That generates a novel Kaleckian balanced budget multiplier driven by changed composition of government spending. The paper concludes with some economic and political economy concerns about a JGP that are flagged by the model.

Suggested Citation

  • Thomas Palley, 2018. "Government Spending and the Income-Expenditure Model: The Multiplier, Spending Composition, and Job Guarantee Programs," FMM Working Paper 30-2018, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:fmmpap:30-2018
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    References listed on IDEAS

    as
    1. L. Randall Wray, 2015. "Modern Money Theory," Palgrave Macmillan Books, Palgrave Macmillan, edition 2, number 978-1-137-53992-2.
    2. William Darity & Darrick Hamilton, 2018. "The Federal Job Guarantee," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 53(3), pages 179-180, May.
    3. Thomas I. Palley, 2018. "Re-theorizing the welfare state and the political economy of neoliberalism's war against it," FMM Working Paper 16-2018, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    4. Eric Tymoigne & L. Randall Wray, 2015. "Modern Money Theory: A Reply to Palley," Review of Political Economy, Taylor & Francis Journals, vol. 27(1), pages 24-44, January.
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    Cited by:

    1. Donato Di Carlo & Oscar Molina, 2024. "Same same but different? The Mediterranean growth regime and public sector wage-setting before and after the sovereign debt crisis," European Journal of Industrial Relations, , vol. 30(1), pages 31-53, March.
    2. Vishnu Padayachee, 2019. "Can progressive macroeconomic policy address growth and employment while reducing inequality in South Africa?," The Economic and Labour Relations Review, , vol. 30(1), pages 3-21, March.

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    More about this item

    Keywords

    Government spending; spending composition; balanced budget multiplier; job guarantee program;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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