Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/209179 
Year of Publication: 
2019
Series/Report no.: 
Working Paper No. 936
Publisher: 
Levy Economics Institute of Bard College, Annandale-on-Hudson, NY
Abstract: 
This paper will present the Modern Money Theory approach to government finance. In short, a national government that chooses its own money of account, imposes a tax in that money of account, and issues currency in that money of account cannot face a financial constraint. It can make all payments as they come due. It cannot be forced into insolvency. While this was well understood in the early postwar period, it was gradually "forgotten" as the neoclassical theory of the household budget constraint was applied to government finance. Matters were made worse by the development of "generational accounting" that calculated hundreds of trillions of dollars of government red ink through eternity due to "entitlements." As austerity measures were increasingly adopted at the national level, fiscal responsibility was shifted to state and local governments through "devolution." A "stakeholder" approach to government finance helped fuel white flight to suburbs and produced "doughnut holes" in the cities. To reverse these trends, we need to redevelop our understanding of the fiscal space open to the currency issuer-expanding its responsibility not only for national social spending but also for helping to fund state and local government spending. This is no longer just an academic debate, given the challenges posed by climate change, growing inequality, secular stagnation, and the rise of Trumpism.
Subjects: 
Modern Money Theory
Budget Deficits
State and Local Government Finance
Devolution
Generational Accounting
Stakeholder Approach
JEL: 
E62
H11
H2
H50
H60
H7
Document Type: 
Working Paper

Files in This Item:
File
Size
229.58 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.