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Deficit Spending, Expectations, and Fiscal Policy Effectiveness

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  • Cebula, Richard

Abstract

This paper develops a formal theoretical model within which it investigates mathematically the policy implications of adverse business expectations involving deficit financing. It is found that hostility towards deficit financing will always diminish the effectiveness of fiscal policy and render the ultimate impact of fiscal policy indeterminate. Potentially, a fiscal policy aimed at expansion may lead to a perverse final effect: a decline in economic activity. The model constructed allows deficit financing to influence the money supply.

Suggested Citation

  • Cebula, Richard, 1972. "Deficit Spending, Expectations, and Fiscal Policy Effectiveness," MPRA Paper 52328, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:52328
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    File URL: https://mpra.ub.uni-muenchen.de/52328/1/MPRA_paper_52328.pdf
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    References listed on IDEAS

    as
    1. Silber, William L, 1970. "Fiscal Policy in IS-LM Analysis: A Correction," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 2(4), pages 461-472, November.
    2. Jesse Burkhead, 1954. "The Balanced Budget," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 68(2), pages 191-216.
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    Cited by:

    1. William D. Jackson, 1976. "Determinants of long-term bond risk," Working Paper 76-03, Federal Reserve Bank of Richmond.
    2. Lehment, Harmen, 1983. "The macroeconomic implications of public sector deficits," Kiel Working Papers 168, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    budget deficit; fiscal policy effectiveness; business expectations;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H69 - Public Economics - - National Budget, Deficit, and Debt - - - Other

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