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The Keynesian Multiplier Effect Reconsidered
Author(s) -
ONO YOSHIYASU
Publication year - 2011
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2011.00397.x
Subject(s) - transfer payment , economics , government spending , multiplier (economics) , measures of national income and output , private consumption , payment , public economics , government (linguistics) , consumption (sociology) , national government , national accounts , public spending , macroeconomics , fiscal policy , finance , political science , welfare , sociology , law , market economy , social science , linguistics , philosophy , politics
In the standard Keynesian framework, government spending on useless public works has a larger multiplier effect than spending on government transfer payments does. In other words, spending on useless public works increases national income by more than an equivalent increase in government transfer payments would. Nevertheless, their effects on national benefit are identical. For both, the national benefit equals the direct benefit created by the spending. If there are two income classes, some transfers reduce both the national income and the national benefit. Some government purchases completely crowd out private consumption and reduce the national benefit.