Review of: "Necessity of budget deficit in a growing economy where people hold money and leave a bequest"
Year: 2023
Type: peer-review
Abstract: The author explores the possibility of substitutability between budget deficits and money holding and bequests as a policy tool for achieving full employment in a growing economy where consumers derive utility not only from consumption but also from money holding and bequests.The overlapping generations model in which consumers bequeath to their descendants and hold money and the Barro-type utility function, in which people include the utility of their children in their own utility.Using algebraic equations only , the author hopes to show that the budget deficit is necessary to maintain full employment at constant prices in a growing economy.Also, he thinks that a balanced budget would not allow to reach full employment at constant prices.Similarly, the author tries to show that if the real budget deficit is lower than that which is necessary and sufficient for full employment at constant prices, a recession would occur, if not inflation in the opposite case.Insofar as the utility function of Robert Barro (1974) is concerned, the author refers to the Ricardian equivalence principle, which presupposes that economic agents have an infinite life horizon, and does not seem to consider the case of transitory, but rather permanent, public spending.Because of the rationality of economic agents (Ricardian equivalence), fiscal policy is totally inefficient.It will leave the aggregate product and the money market unchanged.In this respect, only a Bennett Mac Callum and John Whitaker (1979) style policy surprise could have a small effect on the aggregate product and the money market.Therefore, the following equation, in particular, cannot be obtained:
DOI: 10.32388/pgwk3h
Author: Kcodgoh Edgeweblime
Institution: University of Lomé
Language: English
Domain: Social Sciences
Open Access status: gold
OpenAlex ID: W4376129441