Government Deficits and Aggregate Demand
40 Pages Posted: 3 May 2004 Last revised: 11 Sep 2010
Date Written: 1980
The evidence presented in this paper indicates that changes in government spending, transfers and taxes can have substantial effects on aggregate demand. The estimates also indicate that the promise of future social security benefits significantly reduces private saving. Each of the basic implications of the so-called "Ricardian equivalence theorem" is contradicted by the data. The results are consistent with the more general view of the effects of fiscal actions and fiscal expectations that is described in the paper.
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