Fallacy of the Multiplier Effect: Correcting the Income Analysis

8 Pages Posted: 18 Oct 2006

See all articles by Yoshiyasu Ono

Yoshiyasu Ono

Osaka University - Institute of Social and Economic Research (ISER)

Date Written: October 2006

Abstract

Although the Keynesian multiplier effect of public works is criticized for lack of a microeconomic foundation, it is still taught in most undergraduate courses and believed to be useful for policy makers. However, it has a serious fallacy even if we accept the consumption function. This note shows that useless public works is equivalent to unemployment relief expenditure in the presence of unemployment and that the argument on the multiplier effect seriously misleads the present national accounting and thereby distorts evaluation of public works. A correction of the textbook explanation on the income analysis is also provided.

Keywords: multiplier effect, consumption function, national income account

JEL Classification: E12, E62, E01

Suggested Citation

Ono, Yoshiyasu, Fallacy of the Multiplier Effect: Correcting the Income Analysis (October 2006). ISER Discussion Paper No. 673. Available at SSRN: https://ssrn.com/abstract=938327 or http://dx.doi.org/10.2139/ssrn.938327

Yoshiyasu Ono (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

Register to save articles to
your library

Register

Paper statistics

Downloads
120
Abstract Views
1,018
rank
231,526
PlumX Metrics