Necessity of Budget Deficit Under Economic Growth in Monopolistic Competition
The aim of the paper is to show, using a simple two-period overlapping generations model in which goods are produced solely by labour in a monopolistically competitive industry, that a continuous budget deficit (including the interest payments on government bonds) is necessary to achieve and maintai...
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| Format: | Article |
| Language: | English |
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Sciendo
2022-01-01
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| Series: | Economics and Business |
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| Online Access: | https://doi.org/10.2478/eb-2022-0001 |
| _version_ | 1797947718458408960 |
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| author | Tanaka Yasuhito |
| author_facet | Tanaka Yasuhito |
| author_sort | Tanaka Yasuhito |
| collection | DOAJ |
| description | The aim of the paper is to show, using a simple two-period overlapping generations model in which goods are produced solely by labour in a monopolistically competitive industry, that a continuous budget deficit (including the interest payments on government bonds) is necessary to achieve and maintain full employment under economic growth driven by technological progress. Since the budget deficits must be continuous, it might be better if they were financed by seigniorage rather than government debt. Since the budget deficit due to the issuance of government bonds puts pressure on fiscal expenditures in the amount of interest payments, a budget deficit of the same size due to seigniorage is a more effective use of the budget. It will also be shown that to achieve full employment from a recession with involuntary unemployment the extra budget deficit is necessary. |
| first_indexed | 2024-04-10T21:32:13Z |
| format | Article |
| id | doaj.art-eb7523d56bb245599f57e4212c6f16bd |
| institution | Directory Open Access Journal |
| issn | 2256-0394 |
| language | English |
| last_indexed | 2024-04-10T21:32:13Z |
| publishDate | 2022-01-01 |
| publisher | Sciendo |
| record_format | Article |
| series | Economics and Business |
| spelling | doaj.art-eb7523d56bb245599f57e4212c6f16bd2023-01-19T13:20:29ZengSciendoEconomics and Business2256-03942022-01-0136111610.2478/eb-2022-0001Necessity of Budget Deficit Under Economic Growth in Monopolistic CompetitionTanaka Yasuhito0Doshisha University, Kyoto, JapanThe aim of the paper is to show, using a simple two-period overlapping generations model in which goods are produced solely by labour in a monopolistically competitive industry, that a continuous budget deficit (including the interest payments on government bonds) is necessary to achieve and maintain full employment under economic growth driven by technological progress. Since the budget deficits must be continuous, it might be better if they were financed by seigniorage rather than government debt. Since the budget deficit due to the issuance of government bonds puts pressure on fiscal expenditures in the amount of interest payments, a budget deficit of the same size due to seigniorage is a more effective use of the budget. It will also be shown that to achieve full employment from a recession with involuntary unemployment the extra budget deficit is necessary.https://doi.org/10.2478/eb-2022-0001budget deficiteconomic growthgovernment bondsoverlapping generations modelseignioragee12e24 |
| spellingShingle | Tanaka Yasuhito Necessity of Budget Deficit Under Economic Growth in Monopolistic Competition Economics and Business budget deficit economic growth government bonds overlapping generations model seigniorage e12 e24 |
| title | Necessity of Budget Deficit Under Economic Growth in Monopolistic Competition |
| title_full | Necessity of Budget Deficit Under Economic Growth in Monopolistic Competition |
| title_fullStr | Necessity of Budget Deficit Under Economic Growth in Monopolistic Competition |
| title_full_unstemmed | Necessity of Budget Deficit Under Economic Growth in Monopolistic Competition |
| title_short | Necessity of Budget Deficit Under Economic Growth in Monopolistic Competition |
| title_sort | necessity of budget deficit under economic growth in monopolistic competition |
| topic | budget deficit economic growth government bonds overlapping generations model seigniorage e12 e24 |
| url | https://doi.org/10.2478/eb-2022-0001 |
| work_keys_str_mv | AT tanakayasuhito necessityofbudgetdeficitundereconomicgrowthinmonopolisticcompetition |