Munich Personal RePEc Archive

Deficit Spending, Expectations, and Fiscal Policy Effectiveness

Cebula, Richard (1972): Deficit Spending, Expectations, and Fiscal Policy Effectiveness. Published in: Public Finance/Finances Publiques , Vol. 28, No. 3-4 (10 December 1973): pp. 362-370.


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This paper develops a formal theoretical model within which it investigates mathematically the policy implications of adverse business expectations involving deficit financing. It is found that hostility towards deficit financing will always diminish the effectiveness of fiscal policy and render the ultimate impact of fiscal policy indeterminate. Potentially, a fiscal policy aimed at expansion may lead to a perverse final effect: a decline in economic activity. The model constructed allows deficit financing to influence the money supply.

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