Finance in a Classical and Harrodian Cyclical Growth Model
This paper addresses two broad questions. The first one relates to the economic rationale for the existence of the welfare state. To address this question, we review the marginalist arguments and then counterpose a historical and institutional analysis of the rise of the U.S. welfare state. The second question concerns the macroeconomic impacts of welfare spending. We examine the standard neoclassical macroeconomic arguments for and against welfare cutbacks and then propose an alternative growth framework, rooted in the classical and Harrodian traditions, to evaluate social policy. We argue that the alternative framework provides both demand-side and supply-side mechanisms whereby social spending can be supported without harmful long-run macroeconomic effects. Our analysis suggests that, in general, because growth and crises are endogenous, there may be no tension between social policy and economic performance. Specifically, the recent cutbacks in the U.S. are hard to justify on purely economic grounds.
|Date of creation:||12 Oct 2000|
|Date of revision:|
|Note:||Type of Document - Adobe Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 58; figures: included|
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- Haliassos, Michael & Tobin, James, 1990.
"The macroeconomics of government finance,"
Handbook of Monetary Economics,
in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 17, pages 889-959
- A. B. Atkinson, 1999. "The Economic Consequences of Rolling Back the Welfare State," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011719, June.
- Sharon J. Erenburg, 1993. "The Relationship Between Public and Private Investment," Economics Working Paper Archive wp_85, Levy Economics Institute.
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