A note on the Kaleckian government spending multiplier and self-financing fiscal policy
DOI:
https://doi.org/10.13133/2037-3643/18987Keywords:
Fiscal policy, government spending multiplier, self-financing, debt-to-GDP ratio, decent work and economic growthAbstract
This paper formulates a simple short-term Kaleckian model where the impact on output of an active fiscal policy can be assessed and the Kaleckian government spending multiplier introduced. The model also allows us to verify the limits through which an expansion of public spending can be self-financing. As in DeLong and Summers (2012) and Leão (2013), an unbalanced fiscal expansion raises aggregate demand and output through the short-term fiscal multiplier, and higher current output brings with it higher tax collections. Thus, under certain conditions, this mechanism allows for the recapture of some of the costs of the fiscal expansion. Due to the Kaleckian features of the model economy, a change in the functional distribution of income will generate an alteration in the conclusions reached regarding the evolution of the incremental debt-to-GDP ratio and self-financing. This is an important aspect of the distributional effects in Kaleckian models that has received very little or no attention from the theoretical literature.
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