Economic Growth and the Effects of Fiscal Policy

17 Pages Posted: 12 Jan 2011

See all articles by Richard H. Day

Richard H. Day

University of Southern California - Department of Economics

Chengyu Yang

affiliation not provided to SSRN

Date Written: August 13, 2010

Abstract

The macroeconomic effects of fiscal policy are analyzed using a Keynesian growth model. Comparative static analysis shows that the long-run effects of an increase in public spending and a decrease in taxation on economic growth and government budget balance depend on the relative size of marginal propensity to consume and invest and could be positive under certain conditions. Empirical estimates show that consumption and production structure have changed significantly from 1930s to 2007; both positive and negative effects on growth and budget balance of the same fiscal policy are found in different time periods.

Suggested Citation

Day, Richard H. and Yang, Chengyu, Economic Growth and the Effects of Fiscal Policy (August 13, 2010). Metroeconomica, Vol. 62, Issue 1, pp. 218-234, 2010, Available at SSRN: https://ssrn.com/abstract=1738148 or http://dx.doi.org/10.1111/j.1467-999X.2010.04108.x

Richard H. Day (Contact Author)

University of Southern California - Department of Economics ( email )

Kaprielian Hall 318-A
Los Angeles, CA 90089
United States
213-740-2432 (Phone)
213-740-8543 (Fax)

Chengyu Yang

affiliation not provided to SSRN

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