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.

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: budget deficit; fiscal policy effectiveness; business expectations
• Subjects: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E17 - Forecasting and Simulation: Models and Applications; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H32 - Firm; H - Public Economics > H6 - National Budget, Deficit, and Debt > H62 - Deficit ; Surplus; H - Public Economics > H6 - National Budget, Deficit, and Debt > H69 - Other

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