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The Macroeconomics of Government Spending: Distinguishing Between Government Purchases, Government Production, and Job Guarantee Programs

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  • Thomas Palley

    (Economics for Democratic and Open Societies (US))

Abstract

This paper reconstructs the Keynesian income – expenditure (IE) model to include distinctions between government purchases of private sector output, government production, and government job guarantee program (JGP) employment. Analytically, including those distinctions transforms the model from a single sector model into a multi-sector model. It also surfaces the logic behind the automatic stabilizer property of JGP employment. The model is then extended to include Kaleckian income distribution effects which contribute to explaining why expenditure multipliers vary by type of fiscal expenditure. The Kaleckian version generates a new balanced budget multiplier driven by changed composition of government spending. It also illuminates some macroeconomic implications of privatization of government produced services.

Suggested Citation

  • Thomas Palley, 2021. "The Macroeconomics of Government Spending: Distinguishing Between Government Purchases, Government Production, and Job Guarantee Programs," Working Papers PKWP2107, Post Keynesian Economics Society (PKES).
    • Handle: RePEc:pke:wpaper:pkwp2107
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    References listed on IDEAS

    as
    1. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
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    3. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    4. Mark Setterfield, 2019. "Time variation in the size of the multiplier: a Kalecki–Harrod approach," Review of Keynesian Economics, Edward Elgar Publishing, vol. 7(1), pages 28-42, January.
    5. Orcan Cortuk, 2013. "A disaggregated approach to the determination of government spending multipliers," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 16(1), pages 31-45.
    6. Thomas Palley, 2020. "Re-Theorizing the Welfare State and the Political Economy of Neoliberalism’s Campaign Against It," Journal of Economic Issues, Taylor & Francis Journals, vol. 54(3), pages 588-612, July.
    7. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78-121.
    8. Fazzari Steven M. & Morley James & Panovska Irina, 2015. "State-dependent effects of fiscal policy," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 19(3), pages 285-315, June.
    9. Orcan Cortuk & Mustafa Haluk Guler, 2015. "Disaggregated approach to government spending shocks: a theoretical analysis," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 18(4), pages 267-292, October.
    10. William Darity & Darrick Hamilton, 2018. "The Federal Job Guarantee," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 53(3), pages 179-180, May.
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    More about this item

    Keywords

    Government spending; government production; balanced budget multiplier; automatic stabilizers; job guarantee program;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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