Chapter 35 Modern Fiscal Policy Dilemma

Chapter 35 Modern Fiscal Policy Dilemma - Chapter 35 Modern...

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Chapter 35 Modern Fiscal Policy Dilemma Sound Finance was a view of fiscal policy that the government budget should always be balanced except in wartime o Primarily on political grounds Classical liberal tradition, viewed gov with suspicious any policy make it easier to increase gov spending was not cool Ricardian equivalence theorem o If gov ran deficit, it would increase tax in future to pay interest on bond and repay bond o Future taxes would make taxpayers pooerer in the same that paying taxes now would make them poorer o Sound finance made increasing gov spending more difficult and brought home politicials central economic lesson that there is no free lunch o Fiscal policy – the deliberate running of a deficit or surplus was key after 1930 Recession is small, maintain a policy of sound finance Depression – consider stimulating the entire economy. functional finance – theoretical propositions, governments should make spending and taxing decisions on the basis of their effect of the economy not on the basis of some moralistic principle that budgets should be balanced
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Chapter 35 Modern Fiscal Policy Dilemma - Chapter 35 Modern...

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