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THE SHORT‐RUN EFFECTS OF FISCAL POLICY WITH USEFUL GOVERNMENT EXPENDITURE
Author(s) -
Groenewold Nicolaas
Publication year - 1984
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.1467-8586.1984.tb00526.x
Subject(s) - economics , fiscal policy , consumption (sociology) , budget constraint , government expenditure , fiscal multiplier , macroeconomics , public expenditure , point (geometry) , government (linguistics) , macro , constraint (computer aided design) , public finance , government spending , government budget , aggregate expenditure , short run , public economics , microeconomics , welfare , market economy , mechanical engineering , social science , linguistics , philosophy , geometry , mathematics , sociology , computer science , programming language , engineering
This paper examines the short‐run effects of changing government expenditure on output, consumption and employment. It attempts to combine the Public‐Finance and macroeconomic approaches to the analysis of fiscal policy by introducing government expenditure which is ‘useful’ in consumption into an ISLM‐type macro model which is derived from the singleperiod maximizing decisions of households and firms and which includes a government budget constraint. The principal conclusion is that the effects of fiscal policy on output and employment depend on the ‘efficiency’ of government expenditure. The more efficiently government expenditure meets consumption needs, the less effective is fiscal policy to the point where the fiscal‐policy multiplier may be negative.