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Disequilibrium and the Welfare-Maximising Levels of Government Spending, Taxation and Debt

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  • Rankin, Neil

Abstract

A "disequilibrium" framework, which extends that of R. J. Barro and H. I. Grossman_(1971) and E. Malinvaud_(1977) to include overlapping generations and dynamics due to perfect foresight and t he accumulation of bonds and capital, is used to determine when a welfare-maximizing fiscal policy requires a higher level of government spending than in Walras ian equilibrium. When deficits are permitted, optimum spending either equals the Walrasian optimum, or differs in a way depending arbitrarily on preferences. When a balanced budget is imposed, two situations which may justify spending clearly above the Walrasian optimum are: _(1) when capital accumulation is included;_(2) when spending provides utility to consumers. Copyright 1987 by Royal Economic Society.

Suggested Citation

  • Rankin, Neil, 1987. "Disequilibrium and the Welfare-Maximising Levels of Government Spending, Taxation and Debt," Economic Journal, Royal Economic Society, vol. 97(385), pages 65-85, March.
    • Handle: RePEc:ecj:econjl:v:97:y:1987:i:385:p:65-85
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    Cited by:

    1. Edward Nelson, 2004. "Money and the Transmission Mechanism in the Optimizing IS-LM Specification," History of Political Economy, Duke University Press, vol. 36(5), pages 271-304, Supplemen.
    2. Miller, Marcus & Rankin, Neil & Zhang, Lei, 2012. "Borrowing from thy neighbour: a European perspective on sovereign debt," CAGE Online Working Paper Series 73, Competitive Advantage in the Global Economy (CAGE).
    3. Farmer Karl & Kuplen Stefan, 2018. "Involuntary Unemployment in a Neoclassical Growth Model with Public Debt and Human Capital," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 63(2), pages 3-34, August.
    4. Ganelli, Giovanni, 2003. "Useful government spending, direct crowding-out and fiscal policy interdependence," Journal of International Money and Finance, Elsevier, vol. 22(1), pages 87-103, February.
    5. Yiannis Stournaras, 2005. "Aggregate Supply and Demand, the Real Exchange Rate and Oil Price Denomination," Working Papers 26, Bank of Greece.
    6. repec:grz:wpaper:2013-07 is not listed on IDEAS
    7. Karl Farmer, 2013. "EMU Imbalances in a Two-Country Overlapping Generations Model," EcoMod2013 5484, EcoMod.
    8. Albani, Maria & Stournaras, Yannis, 2009. "A Model to Deal with Aggregate Supply and Demand Imbalances: The Case of Greece," The Journal of Economic Asymmetries, Elsevier, vol. 6(1), pages 15-28.
    9. van der Ploeg, F., 1987. "Rationing in open economy and dynamic macroeconomics : A survey," Other publications TiSEM fd411b51-f487-4dde-a0e9-6, Tilburg University, School of Economics and Management.

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