Munich Personal RePEc Archive

Budget Deficit to Achieve and Maintain Full-employment Under Growth by Technological Progress

Tanaka, Yasuhito (2021): Budget Deficit to Achieve and Maintain Full-employment Under Growth by Technological Progress.

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Abstract

The purpose of this paper is to show, using a simple two-periods overlapping generations (OLG) model in which goods are produced solely by labor in a monopolistically competitive industry, that a continuous budget deficit is necessary to maintain full-employment under economic growth driven by autonomous technological progress. Since the budget deficit must be continuous, it should be financed by seigniorage not by public debt. Also we will show that to achieve full employment in the presence of involuntary unemployment we need extra budget deficit. Budget deficit is necessary under growth because of deficiency of the savings of the older generation. These budget deficits are not debt and do not need to be redeemed. The money supply equals the savings. An increase in the money supply equals an increase in the savings. It equals the budget deficit. The rate of an increase in the savings equals the growth rate and therefore budget deficit does not cause inflation.

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