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Public debt and full employment in a stock-flow consistent model of a corporate economy

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  • Soon Ryoo

    () (Adelphi University)

  • Peter Skott

    () (University of Massachusetts Amherst)

Abstract

This paper examines the fiscal requirements for continuous full employment. We find that (i) changes in the financial behavior of households and firms require adjustments in tax rates and public debt, (ii) the stability of the steady-state solution for public debt depends on the .fiscal instrument and the household consumption function, (iii) in stable cases, a fall in government consumption (or a decline in another component of autonomous demand) requires an increase in the steady-state ratio of public debt to capital, and (iv) the steady-state tax rate may be positively or negatively related to the level of debt. JEL Categories: E62, E22

Suggested Citation

  • Soon Ryoo & Peter Skott, 2011. "Public debt and full employment in a stock-flow consistent model of a corporate economy," UMASS Amherst Economics Working Papers 2011-26, University of Massachusetts Amherst, Department of Economics.
  • Handle: RePEc:ums:papers:2011-26
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    References listed on IDEAS

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    1. Peter Skott, 2012. "Theoretical And Empirical Shortcomings Of The Kaleckian Investment Function," Metroeconomica, Wiley Blackwell, vol. 63(1), pages 109-138, February.
    2. Peter Skott & Soon Ryoo, 2011. "Public debt in an OLG model with imperfect competition," UMASS Amherst Economics Working Papers 2011-25, University of Massachusetts Amherst, Department of Economics.
    3. Thomas I. Palley, 2010. "The Simple Macroeconomics of Fiscal Austerity, Public Sector Debt and Deflation," IMK Working Paper 8-2010, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    4. Peter Skott, 2013. "Increasing Inequality and Financial Instability," Review of Radical Political Economics, Union for Radical Political Economics, vol. 45(4), pages 478-488, December.
    5. Peter Skott, "undated". "Demand Policy in the Long Run," Economics Working Papers 2000-17, Department of Economics and Business Economics, Aarhus University.
    6. Wynne Goldey & Marc Lavoie, 2007. "Fiscal policy in a stock-flow consistent (SFC) model," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 30(1), pages 79-100.
    7. Yeva Nersisyan & L. Randall Wray, 2010. "Deficit Hysteria Redux? Why We Should Stop Worrying About U.S. Government Deficits," Economics Public Policy Brief Archive ppb_111, Levy Economics Institute.
    8. Peter Skott & Soon Ryoo, 2008. "Macroeconomic implications of financialisation," Cambridge Journal of Economics, Oxford University Press, vol. 32(6), pages 827-862, November.
    9. Schlicht, Ekkehart, 2004. "Public Debt as Private Wealth," Discussion Papers in Economics 371, University of Munich, Department of Economics.
    10. Asada, Toichiro & Chiarella, Carl & Flaschel, Peter & Mouakil, Tarik & Proaño, Christian R., 2010. "Stabilizing an unstable economy: On the choice of proper policy measures," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 4, pages 1-43.
    11. Ryoo, Soon, 2010. "Long waves and short cycles in a model of endogenous financial fragility," Journal of Economic Behavior & Organization, Elsevier, vol. 74(3), pages 163-186, June.
    12. Jan Kregel, 2010. "Fiscal Responsibility: What Exactly Does It Mean?," Economics Working Paper Archive wp_602, Levy Economics Institute.
    13. Peter Skott & Ben Zipperer, 2012. "An empirical evaluation of three post-Keynesian models," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 9(2), pages 277-307.
    14. Ekkehart Schlicht, 2006. "Public Debt As Private Wealth: Some Equilibrium Considerations," Metroeconomica, Wiley Blackwell, vol. 57(4), pages 494-520, November.
    15. Nakatani, Takeshi & Skott, Peter, 2007. "Japanese growth and stagnation: A Keynesian perspective," Structural Change and Economic Dynamics, Elsevier, vol. 18(3), pages 306-332, September.
    16. Paul Davidson, 2010. "Making dollars and sense of the U.S. government debt," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 32(4), pages 661-666, July.
    17. Eckhard Hein & Marc Lavoie & Till van Treeck, 2012. "Harrodian Instability And The ‘Normal Rate’ Of Capacity Utilization In Kaleckian Models Of Distribution And Growth—A Survey," Metroeconomica, Wiley Blackwell, vol. 63(1), pages 139-169, February.
    18. Philip Arestis & Malcolm Sawyer, 2010. "The return of fiscal policy," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 32(3), pages 327-346, April.
    19. Stephen Cecchetti & Madhusudan Mohanty & Fabrizio Zampolli, 2010. "The future of public debt: prospects and implications," BIS Working Papers 300, Bank for International Settlements.
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    Citations

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    Cited by:

    1. Peter Skott, 2016. "Aggregate demand, functional finance, and secular stagnation," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 13(2), pages 172-188, September.
    2. Eugenio Caverzasi & Antoine Godin, 2013. "Stock-flow Consistent Modeling through the Ages," Economics Working Paper Archive wp_745, Levy Economics Institute.
    3. Eckhard Hein, 2016. "Autonomous government expenditure growth, deficits, debt and distribution in a neo-Kaleckian growth model," Working Papers 2016-02, Universita' di Cassino, Dipartimento di Economia e Giurisprudenza.
    4. repec:ums:papers:2012-10 is not listed on IDEAS
    5. Soon Ryoo & Peter Skott, 2017. "Fiscal and Monetary Policy Rules in an Unstable Economy," Metroeconomica, Wiley Blackwell, vol. 68(3), pages 500-548, July.
    6. Tim Jackson & Ben Drake & Peter Victor & Kurt Kratena & Mark Sommer, 2014. "Literature review and model development," WWWforEurope Working Papers series 65, WWWforEurope.
    7. Skott Peter & Ryoo Soon, 2014. "Public debt in an OLG model with imperfect competition: long-run effects of austerity programs and changes in the growth rate," The B.E. Journal of Macroeconomics, De Gruyter, vol. 14(1), pages 1-20, January.
    8. Skott, Peter & Ryoo, Soon, 2015. "Functional finance and intergenerational distribution in a Keynesian OLG model," UMASS Amherst Economics Working Papers 2015-13, University of Massachusetts Amherst, Department of Economics.
    9. Skott, Peter, 2016. "Weaknesses of 'wage-led growth'," UMASS Amherst Economics Working Papers 2016-08, University of Massachusetts Amherst, Department of Economics.
    10. Greg Hannsgen & Tai Young-Taft, 2015. "Inside Money in a Kaldor-Kalecki-Steindl Fiscal Policy Model: The Unit of Account, Inflation, Leverage, and Financial Fragility," Economics Working Paper Archive wp_839, Levy Economics Institute.

    More about this item

    Keywords

    Public debt; stock-flow consistency; corporate economy; full employment;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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