Welfare Analysis of a Fiscal Reconstruction Policy in an Overlapping Generations Economy with Public Investment

Tanaka, Jumpei

doi:10.1007/s00712-002-0575-4

Cited by 8 publications

(6 citation statements)

References 11 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The economy grows by technological progress at the rate of γ -1 > 0. Our model is based on the model of Tanaka (2011), Tanaka (2013, Otaki (2007), Otaki (2009), Otaki (2015) and Tanaka (2021a).…”

Section: The Modelmentioning

confidence: 99%

AD-AS Analysis from the Perspective of Functional Finance Theory and MMT

Tanaka

2023

Folia Oeconomica Stetinensia

View full text Add to dashboard Cite

Research background In the past few years, MMT (Modern Money Theory or Modern Monetary Theory) has been increasingly discussed in Japan as well as in the U.S. However, both in the U.S. and Japan, analysis using mathematics is lacking and analysis using IS-LM and AD-AS analysis methods in macroeconomics is almost non-existent. Purpose We present an AD-AS analysis from the perspective of Functional Finance Theory and MMT (Modern Monetary Theory). Research methodology Graphical analyses with some mathematical analyses. Mathematical analyses include graphic analysis using AD and AS curves and calculations to derive equations representing them based on models of consumer and firm behavior. Results Using an overlapping generations model under monopolistic competition we show the following results by calculations and graphical analyses. 1. The budget deficit (including interest payments on government bonds) equals an increase in the savings of consumers from period to period. This result means that the debt-GDP ratio would not diverge to infinity, but would remain at a finite value whether the interest rate of government bonds is larger or smaller than the growth rate. 2. We need a budget deficit (including interest payments) to maintain full employment without inflation under economic growth. However, if the interest rate of government bonds is larger than the growth rate, we need a budget surplus (excluding interest payments) to maintain full employment without inflation. 3. A return to full employment from a recession can be achieved by implementing the appropriate fiscal policies through increased government spending or tax cuts. 4. Excessive government expenditure or an insufficient tax under full employment induces inflation. Novelty This is probably the first AD-AS analysis done from the standpoint of Functional Finance Theory and MMT.

show abstract

Section: The Modelmentioning

confidence: 99%

AD-AS Analysis from the Perspective of Functional Finance Theory and MMT

Tanaka

2023

Folia Oeconomica Stetinensia

View full text Add to dashboard Cite

show abstract

“…Equations (36) and (38) are affected by a change in tax policy through the three channels described by Tanaka (2003): the total wealth effect means that a change in the tax rate causes variation of total wealth, the capital growth effect is that by which a higher level of private capital stock at time s brings about a higher profit dividend at time s (future generations), and the consumption growth effect is that a higher growth rate of consumption engenders a higher level of welfare. If government initially executes a growth-maximizing policy, then all generations will enjoy higher welfare states.…”

Section: Model Incorporating Only Income Tax Financingmentioning

confidence: 99%

“…See de la Croix and Licandro (1999),Hu (1999),Reinhart (1999) andFutagami and Nakajima (2001) for details. 5 Saint-Paul (1992) presents a pioneering study using a simple endogenous growth model with AK production technology Tanaka (2003). investigates the welfare effects of fiscal reconstruction policies using a Yaari-Blanchard model, which can be characterized as an extension ofBarro (1990).…”

mentioning

confidence: 99%

Public Capital, Taxation and Endogenous Growth in a Finite Horizons Model

Tamai

2009

Metroeconomica

View full text Add to dashboard Cite

This paper presents development of an endogenously growing finite horizons model with public capital, and investigates macroeconomic effects of fiscal policy and a change in life expectancy. Specifically regarding novel results, a growth-maximizing income tax rate exists that is less than the elasticity of public capital to output. In addition, in the model with income tax financing, there might exist an inverted-U-shaped relationship between life expectancy and growth, which is consistent with some empirical evidence. In this paper, we elucidate the interaction among public capital accumulation, taxes, growth, welfare and life expectancy.

show abstract

“…Various analyses have been conducted by Jumpei Tanaka on the significance of budget deficit and government debt in the economy and the intergenerational burden. Please see, Tanaka (2010Tanaka ( , 2011aTanaka ( , 2011bTanaka ( , 2013. 1 Jumpei Tanaka's analysis focuses on the difference in economic welfare across generations with or without government debts, but his main model does not include economic growth and he assumes that all government debts are redeemed by taxes.…”

Section: Introductionmentioning

confidence: 99%

Monetary economy and budget deficit in endogenous growth model

Tanaka

2023

International Studies of Economics

View full text Add to dashboard Cite

By an endogenous growth model with two‐period overlapping generations structure and money holding of consumers, we examine the existence of budget deficit in an economy which endogenously grows by investments of firms. The main results are as follows. (1) Budget deficit is necessary for full employment under constant prices. (2) Inflation is induced if the actual budget deficit is greater than the value at which full employment is achieved under constant prices. (3) If the actual budget deficit is smaller than the value which is necessary and sufficient for full employment under constant prices, a recession occurs. Therefore, balanced budget cannot achieve full employment under constant prices. We do not assume that budget deficit must later be made up by budget surplus. This paper is an example of an analysis using a very simple model of the following statement by John Maynard Keynes.“Unemployment develops, that is to say, because people want the moon;—men cannot be employed when the object of desire (i.e. money) is something which cannot be produced and the demand for which cannot be readily choked off. There is no remedy but to persuade the public that green cheese is practically the same thing and to have a green cheese factory (i.e. a central bank) under public control.”In the appendix of this paper, we show that if money as well as goods are produced by capital and labor, budget deficit is not necessary for full employment under constant prices.

show abstract

Welfare Analysis of a Fiscal Reconstruction Policy in an Overlapping Generations Economy with Public Investment

Cited by 8 publications

References 11 publications

AD-AS Analysis from the Perspective of Functional Finance Theory and MMT

AD-AS Analysis from the Perspective of Functional Finance Theory and MMT

Public Capital, Taxation and Endogenous Growth in a Finite Horizons Model

Monetary economy and budget deficit in endogenous growth model

Contact Info

Product

Resources

About