Open AccessA Game-Theoretic Analysis of Fiscal Policy under Economic Growth from the Perspective of MMT: Toward a Neoclassical Basis of MMT
Author(s) -
Yasuhito Tanaka
Publication year - 2022
Publication title -
wseas transactions on business and economics
Language(s) - English
Resource type - Journals
eISSN - 2224-2899
pISSN - 1109-9526
DOI - 10.37394/23207.2022.19.66
Subject(s) - economics , deficit spending , seigniorage , unemployment , overlapping generations model , inflation (cosmology) , debt , fiscal policy , full employment , government (linguistics) , federal budget , macroeconomics , fiscal deficit , monetary economics , keynesian economics , monetary policy , fiscal year , finance , linguistics , philosophy , physics , theoretical physics
We present a game-theoretic analysis of fiscal policy under economic growth from the perspective of MMT using a simple two-periods overlapping generations (OLG) model. We show the following results. 1) Sustained budget deficits are necessary to maintain full-employment under economic growth driven by population growth. 2) An excessive budget deficit triggers inflation, and after one period inflation full-employment is maintained by sustained budget deficits with constant price. 3) Insufficient government deficit causes involuntary unemployment, and we need extra budget deficit over its steady state value to recover full-employment. These budget deficits need not be, and must not be redeemed. Therefore, if it is institutionally and legally possible, they should be financed by seigniorage not by public debt.