Does Fiscal Policy Matter? Blinder and Solow Revisited
This paper uses the old-Keynesian representative agent model developed in previous work by Farmer (2010) to answer two questions: 1) do increased government purchases crowd out private consumption? 2) do increased government purchases reduce unemployment? Farmer compared permanent tax financed expenditure paths and showed that the answer to 1) was yes and the answer to 2) was no. We generalize his result to temporary bond-financed paths of government purchases that are similar to the actual path that occurred during WWII. We find that a temporary increase in government purchases does crowd out private consumption expenditure as in previous work by Farmer. However, in contrast to Farmer's experiment we find that a temporary increase in government purchases can also reduce unemployment.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
- Roger E. A. Farmer, 2007.
"Aggregate Demand and Supply,"
NBER Working Papers
13406, National Bureau of Economic Research, Inc.
- Blinder, Alan S. & Solow, Robert M., 1973. "Does fiscal policy matter?," Journal of Public Economics, Elsevier, vol. 2(4), pages 319-337.
- Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, August.
- Harrison, Sharon G & Weder, Mark, 2002.
"Did Sunspot Forces Cause the Great Depression?,"
CEPR Discussion Papers
3267, C.E.P.R. Discussion Papers.
- Roger E.A. Farmer, 2010.
"Animal Spirits, Persistent Unemployment and the Belief Function,"
NBER Working Papers
16522, National Bureau of Economic Research, Inc.
- Farmer, Roger E A, 2010. "Animal Spirits, Persistent Unemployment and the Belief Function," CEPR Discussion Papers 8100, C.E.P.R. Discussion Papers.
- Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, August.
When requesting a correction, please mention this item's handle: RePEc:red:sed012:73. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.