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Functional finance and intergenerational distribution in a Keynesian OLG model

Author

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  • Skott, Peter

    (Department of Economics, University of Massachusetts, Amherst, MA 01003,USA, and Aalborg University)

  • Ryoo, Soon

    (Department of Finance and Economics, Adelphi University)

Abstract

This paper examines the role of fiscal policy in the long run. We show that (i) dynamic inefficiency in a standard OLG model generates aggregate demand problems in a Keynesian setting, (ii) fiscal policy can be used to achieve full-employment growth, (iii) the required debt ratio is inversely related to both the growth rate and government consumption, and (iv) a simple and distributionally neutral tax scheme can maintain full employment in the face of variations in ‘household confidence’.

Suggested Citation

  • Skott, Peter & Ryoo, Soon, 2015. "Functional finance and intergenerational distribution in a Keynesian OLG model," UMASS Amherst Economics Working Papers 2015-13, University of Massachusetts Amherst, Department of Economics.
    • Handle: RePEc:ums:papers:2015-13
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    References listed on IDEAS

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    4. Soon Ryoo & Peter Skott, 2013. "Public debt and full employment in a stock-flow consistent model of a corporate economy," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 35(4), pages 511-528.
    5. Peter Skott, "undated". "Demand Policy in the Long Run," Economics Working Papers 2000-17, Department of Economics and Business Economics, Aarhus University.
    6. Skott,Peter, 2008. "Conflict and Effective Demand in Economic Growth," Cambridge Books, Cambridge University Press, number 9780521066310, September.
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    8. Soon Ryoo & Peter Skott, 2017. "Fiscal and Monetary Policy Rules in an Unstable Economy," Metroeconomica, Wiley Blackwell, vol. 68(3), pages 500-548, July.
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    12. Reinhart, Karmen & Rogoff, Kenneth, 2009. ""This time is different": panorama of eight centuries of financial crises," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 77-114, March.
    13. Schlicht, Ekkehart, 2004. "Public Debt as Private Wealth," Discussion Papers in Economics 371, University of Munich, Department of Economics.
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    18. Skott, Peter, 2015. "Public debt, secular stagnation, and functional finance," UMASS Amherst Economics Working Papers 2015-12, University of Massachusetts Amherst, Department of Economics.
    19. Skott Peter & Ryoo Soon, 2014. "Public debt in an OLG model with imperfect competition: long-run effects of austerity programs and changes in the growth rate," The B.E. Journal of Macroeconomics, De Gruyter, vol. 14(1), pages 533-552, January.
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    Cited by:

    1. Peter Skott, 2016. "Aggregate demand, functional finance, and secular stagnation," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 13(2), pages 172-188, September.
    2. Soon Ryoo & Peter Skott, 2017. "Fiscal and Monetary Policy Rules in an Unstable Economy," Metroeconomica, Wiley Blackwell, vol. 68(3), pages 500-548, July.

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    More about this item

    Keywords

    Public debt; Keynesian OLG model; secular stagnation; structural liquidity trap; dynamic efficiency; confidence;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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