Is Keynesian Demand Management Policy Still Viable?

Cunningham, Steven R.; Vilasuso, Jon

doi:10.1080/01603477.1994.11490023

Cited by 16 publications

(9 citation statements)

References 46 publications

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“…This is summed up in the term ‘Ricardian equivalence theorem’, which explains the equivalent effects of budget deficits and taxation on the economy. According to the Ricardian view, resorting to budget deficits today must be matched by a corresponding increase in future taxes, in so doing posing no effect on the interest rates and private consumption (Cunningham and Vilasuso, ).…”

Section: Literature Reviewmentioning

confidence: 99%

Optimal Deficit Financing in a Constrained Fiscal Space in Ghana

Alagidede¹,

Mensah²,

Ibrahim³

2018

African Development Review

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Ghana's public debt has been on the rise in recent years, raising questions of fiscal sustainability. At the same time prices of Ghana's main commodities such as crude oil, gold and cocoa have not fared well in world markets. Coupled with an underdeveloped financial system and weak domestic revenue mobilization capacity, the higher public debt levels pose a significant challenge to macroeconomic stability, and long-run economic growth. This study contributes to a better understanding of the growth effects of high fiscal deficit in Ghana. We employ annual data spanning 1967-2013 and a sample splitting approach to examine the threshold level of Ghana's fiscal deficit and its impact on the country's economic growth. Our finding reveals an optimal fiscal deficit of 7.6 per cent of GDP. We find that the impact on economic growth of fiscal deficit is negative regardless of the sample splitting. However, our evidence shows that this effect is only statistically significant above the threshold. Although, the impact of fiscal deficit on growth is less clear and debatable, we document that fiscal deficit significantly hurts growth when the level exceeds the threshold. We discuss key implications for policy. Note 1. Results from our unit root tests (Augmented Dickey-Fuller and Phillips-Perron tests) also show that all the variables are stationary after first difference. The results are available upon request from the authors.

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Section: Literature Reviewmentioning

confidence: 99%

Optimal Deficit Financing in a Constrained Fiscal Space in Ghana

Alagidede¹,

Mensah²,

Ibrahim³

2018

African Development Review

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“…Budget de®cits are said to crowd out private expenditure through the effect of the de®cit on interest rates, but the evidence linking budget de®cits and interest rates is weak. For example, Cunningham and Vilasuso (1994a5) have to concede that`[u]nfortunately, empirical studies examining the relationship between interest rates and ®scal de®cits are far from conclusive ' (p. 190) and that`whether ®scal de®cits are associated with higher interest rates has yet to be resolved in the economics literature ' (p. 191).…”

Section: Demand Side Policiesmentioning

confidence: 99%

Keynesian Economic Policies for the New Millennium

Arestis

Sawyer

1998

The Economic Journal

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“…Models with either negative or positive fiscal policy spillovers have flourished in the recent literature; 7 but nothing, from a theoretical point of view, may 5 To cite just the most recent ones, Laubach (2003), Ardagna et al (2004), Canzoneri et al (2004). These results nevertheless are not extremely robust, as other studies are inconclusive (Mehra 1992;Cunningham and Vilasuso 1994), or find negative correlation (Caporale and Williams 2002). 6 Landon and Smith (2000) find some effect of provincial debt in Canada on the creditworthiness of the other provinces.…”

Section: The Debate On Fiscal Rules and On The Stability Pactmentioning

confidence: 73%

Fiscal Discipline as a Social Norm: The European Stability Pact

Fitoussi¹,

Saraceno²

2008

J Public Economic Theory

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This paper reviews the arguments for and against the 'Stability and Growth Pact' signed by the countries of the Euro area. We find the theoretical debate to be inconclusive, as both externality and credibility arguments can be used to yield opposite, and equally plausible conclusions. We also argue that evidence in favour of a Pact-like rule is scant. We therefore suggest the view that the Stability Pact is a public social norm, and that a country's adherence to that norm is in fact a response to the need to preserve reputation among the other members of the European Union. Using this extreme but not implausible hypothesis, we build a simple model similar in spirit to Akerlof's (1980) seminal paper on social norms, and we show that reputation issues may cause the emergence of a stable but inferior equilibrium. We further show that after the enlargement, with a number of countries anxious to prove their 'soundness' joining the club, the problems posed by the pact/social norm are likely to increase. JEL Codes: D63, D71, E62, E63

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Is Keynesian Demand Management Policy Still Viable?

Cited by 16 publications

References 46 publications

Optimal Deficit Financing in a Constrained Fiscal Space in Ghana

Optimal Deficit Financing in a Constrained Fiscal Space in Ghana

Keynesian Economic Policies for the New Millennium

Fiscal Discipline as a Social Norm: The European Stability Pact

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