Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/305465 
Year of Publication: 
2024
Series/Report no.: 
Working Paper No. 1055
Publisher: 
Levy Economics Institute of Bard College, Annandale-on-Hudson, NY
Abstract: 
This paper looks at the relationship between government budget deficits and the growth rate of GDP. While orthodox economic theory offers several reasons to believe that growing deficits might be associated with slower growth, and would ultimately be unsustainable, Keynesians assert that deficits could stimulate growth - at least in the short run - implying the relation between deficits and growth could be positive. Modern Money Theory, adopting Godley's sectoral balance approach, Lerner's functional finance approach, and Minsky's theory of financial instability takes a more nuanced approach. Historical data for a number of countries is presented, showing that there is no obvious relation between the deficit ratio and economic growth over long time periods. However, there is a predictable path of the relationship over the course of the business cycle for all countries examined.
Subjects: 
government budget deficit
deficit ratio
GDP growth rate
MMT
sectoral balance
functional finance
Wray curve
automatic stabilizer
Godley
Lerner
JEL: 
B22
B25
B52
E12
E32
E62
F43
H62
H63
Document Type: 
Working Paper

Files in This Item:
File
Size





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