Title: BALANCED BUDGETS: ECONOMIC NIRVANA OR FISCAL CHAOS?
Abstract: This paper investigates the effect of a pay‐as‐you‐go, balanced budget policy on macroeconomic performance. It uses a simple model of the aggregate demand for money and goods, with temporary monetary equilibrium and quantity adjustments on goods markets. Within this framework, if the monetary/real interaction is strong enough, a balanced budget with sufficiently high tax rates (≡ sufficiently high government expenditures) is consistent with typical bounded fluctuations around a relatively high income, low unemployment equilibrium. Lower tax rates (≡ lower government expenditures) can trigger a sharp decline in revenues, expenditures, employment, and output.
Publication Year: 1996
Publication Date: 1996-04-01
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot