Budget deficit for full-employment under growth and inflation by excessive deficit: A theoretical basis for functional finance theory and MMT

2021 ◽  
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Theoretical Basis ◽  
Budget Deficit ◽  
Full Employment ◽  
Finance Theory

Budget Deficit and Full Employment

2000 ◽  
Vol 22 (4) ◽  
pp. 549-563 ◽  
Author(s):  
Julio Lopez-Gallardo
Keyword(s):  
Budget Deficit ◽  
Full Employment

scholarly journals THE MECHANISM OF FISCAL POLICY

2020 ◽  
Vol 1 (1) ◽  
pp. 28-32
Author(s):  
Lidiia Fedoryshyna
Keyword(s):  
Fiscal Policy ◽  
Public Debt ◽  
Budget Deficit ◽  
Absolute Magnitude ◽  
The State ◽  
National Debt ◽  
Agricultural Insurance ◽  
Theoretical Approaches ◽  
Definition Of ◽  
Finance Theory

The purpose of this article is to study fiscal policy, which is one of the methods of regulating the country's macroeconomic policy. Theoretical approaches of scientists to the definition of the term "fiscal policy" are investigated. The contents and principles of the functioning of the mechanism of fiscal policy are disclosed. Method. Theoretical approaches to the definition of mechanisms and discrete components of the fiscal policy of the state and its criteria characteristics have been developed. The research has been based on the use of a systematic approach to the consideration of fiscal phenomena, on the fundamental principles of economic theory, systems theory, theory of finance, theory of taxes, etc. Results. It is observed that the budget deficit and the national debt are closely linked: the increase in the budget deficit leads to an increase in the national debt. But the absolute magnitude of the budget deficit, and therefore of the public debt, does not provide enough information for economic analysis. It is necessary to know what processes the budget deficit is serving, what changes in the reproduction cycle it reflects. It is also very important to measure changes in public debt in relation to changes in GDP. In addition, the tax burden is increasing as a result of these changes. Value/originality. It is determined that along with the expected changes in the methodology of calculation and procedure of tax payment, taxpayers are also concerned about the question of changing the tariff grid by the total amount of taxes due in absolute terms and in relation to the volume and resultant indicators of production activity (revenue, profit). An innovative tariff policy has been proposed and opportunities for using non-traditional agricultural insurance products have been revealed. Recommendations to improve the fiscal policy of the state have been made. The conceptual platform for harmonizing the mechanism of fiscal policy regarding economic entities is substantiated.

scholarly journals A Mathematical Model of MMT (Modern Monetary Theory) with Profit Return

2021 ◽  
Vol 11 (4) ◽  
pp. 39
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Technological Progress ◽  
Budget Deficit ◽  
Full Employment ◽  
Returns To Scale ◽  
Perfect Competition ◽  
Budget Deficits ◽  
Price Inflation ◽  
The Difference ◽  
Growing Economy ◽  
The One

Even in perfect competition there is a positive profit return if the good is produced with decreasing returns to scale technology. Using a two-periods overlapping generations (OLG) model with production under perfect competition with decreasing returns to scale technology in which the economy grows by technological progress and the older generation consumers receive the profit returns, we consider the problem of budget deficit under economic growth. We will show the following results. 1) We need a budget deficit to achieve full employment under constant price when the economy grows by technological progress. 2) If the budget deficit exceeds the level necessary to maintain full employment in a growing economy under constant price, inflation will be triggered. We need a stable budget deficit to prevent further inflation. 3) If the budget deficit is insufficient to maintain full employment, it will cause a recession with involuntary unemployment. We can overcome a recession and restore full employment caused by insufficient budget deficit by a budget deficit larger than the one necessary and sufficient to maintain full employment without a recession. We should not offset the deficit created to overcome the recession by subsequent surpluses because we can maintain full employment through constant budget deficits. Also, we show that in each case the budget deficit equals the difference between the net savings of the younger generation consumers and that of the older generation consumers.

scholarly journals An Elementary Mathematical Model for MMT (Modern Monetary Theory)

2021 ◽  
Vol 13 (3) ◽  
pp. 1
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Technological Progress ◽  
Utility Maximization ◽  
Budget Deficit ◽  
Monopolistic Competition ◽  
Full Employment ◽  
Supply And Demand ◽  
Profit Maximization ◽  
Static Model ◽  
Monetary Theory ◽  
Necessary And Sufficient

In recent years, a school of economics called MMT (Modern Monetary Theory) has been attracting attention, but it has not been analyzed theoretically or mathematically. This study aims to provide a theoretical basis for the skeleton of the MMT argument, while maintaining the basics of the neoclassical microeconomic framework, such as utility maximization of consumers by means of utility functions and budget constraint, profit maximization of firms in monopolistic competition, and equilibrium of supply and demand of goods. Using a simple static model that includes economic growth due to technological progress, we will argue that: 1) a continuous budget deficit is necessary to maintain full employment when the economy is growing, and that this deficit does not have to be covered by future surpluses; 2) Inflation is caused when the actual budget deficit exceeds the level necessary and sufficient to maintain full employment. In order to avoid further inflation, it is necessary to maintain a certain level of budget deficit; 3) A shortfall in the budget deficit leads to recession and involuntary unemployment. To recover from this, a budget deficit that exceeds the level necessary to maintain full employment is required. However, since a continuous budget deficit is necessary after full employment is restored, the deficit created to overcome the recession does not need to be covered by future budget surpluses, nor should it be.

scholarly journals Very Simple Mathematical Model of MMT (Modern Monetary Theory)

2021 ◽  
Vol 11 (3) ◽  
pp. 78
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Technological Progress ◽  
Budget Deficit ◽  
Full Employment ◽  
Returns To Scale ◽  
Perfect Competition ◽  
Monetary Theory ◽  
Budget Deficits ◽  
Growing Economy ◽  
The One ◽  
Constant Returns To Scale

The purpose of this paper is to provide a concise theoretical and mathematical foundation for the major parts of the debate in the recently discussed school of economics called Modern Monetary Theory (MMT), while maintaining the basics of the neoclassical microeconomic framework, such as utility maximization of consumers using budget constraints and utility functions, and equilibrium of demand and supply of goods under perfect competition with constant returns to scale technology. By a two-periods overlapping generations (OLG) model in which the economy grows by technological progress, we will show that: 1) We need a budget deficit to achieve full employment with constant price when the economy grows by technological progress. This budget deficit should not be offset by future surplus; 2) A budget deficit that exceeds the level necessary to maintain full employment in a growing economy with constant price will cause inflation. A stable budget deficit is required to prevent further inflation; 3) A budget deficit that is insufficient to maintain full employment will cause a recession with involuntary unemployment. A budget deficit larger than the one necessary and sufficient to maintain full employment without a recession can overcome a recession caused by insufficient budget deficit and restore full employment. The deficit created to overcome the recession should not be offset by subsequent surpluses, since full employment can then be maintained through constant budget deficits.

Involuntary Unemployment as a Nash Equilibrium and Fiscal Policy for Full Employment

2021 ◽  
pp. 2150018
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Nash Equilibrium ◽  
Fiscal Policy ◽  
Budget Deficit ◽  
Full Employment ◽  
Aggregate Demand ◽  
Fiscal Policies ◽  
Budget Deficits ◽  
Overlapping Generations Model ◽  
Involuntary Unemployment ◽  
Game Theoretic

This study aimed to provide a game-theoretic interpretation of the analyses of involuntary unemployment by deficiency of aggregate demand and fiscal policy to achieve full employment using an overlapping generations model. We showed that involuntary unemployment is in a Nash equilibrium of a game with a firm and consumers. Moreover, we showed that full employment can be achieved through fiscal policies that create budget deficits in recessionary conditions with involuntary unemployment. Once full employment is achieved, it can be sustained without a budget deficit.

scholarly journals On Budget Deficit under Economic Growth: Towards a Mathematical Model of MMT

2021 ◽  
Vol 10 (1) ◽  
pp. 36
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Economic Growth ◽  
Mathematical Model ◽  
Population Growth ◽  
Mathematical Analysis ◽  
Technological Progress ◽  
Budget Deficit ◽  
Overlapping Generations ◽  
Full Employment ◽  
Monetary Theory ◽  
Olg Model

Recently, a school of thought called Modern Monetary Theory (MMT) has been attracting attention, but it has not received much theoretical or mathematical analysis. In this paper, we examine the theoretical validity of the MMT argument using an overlapping generations (OLG) model that includes economic growth due to population growth, and give a generally positive evaluation of MMT. The basic idea is that a certain level of continuous budget deficit is necessary to maintain full employment when the economy is growing, that inflation occurs when the budget deficit exceeds that level, that a recession occurs when the budget deficit falls below that level, and involuntary unemployment occurs. In order to recover from a recession, a budget deficit in excess of that level is required, and that deficit need not be covered by a future budget surplus. The same can be said for growth resulting from technological progress.

scholarly journals A Brief Rationale for MMT Arguments

2021 ◽  
Vol 9 (2) ◽  
pp. 1
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Economic Growth ◽  
Budget Deficit ◽  
Full Employment ◽  
National Income ◽  
Monetary Theory ◽  
Macroeconomic Model ◽  
Necessary And Sufficient

In this note we examine MMT (Modern Monetary Theory) arguments by a simple macroeconomic model without microeconomic foundation. Mainly we will show the following results. 1) In the underemployment case the national income is determined by the budget deficit. 2) In the full employment case we can define the budget deficit which is necessary and sufficient to achieve full employment. 3) The excessive budget deficit causes inflation. 4) We need budget deficit to achieve and maintain full employment under economic growth. 5) We can recover recession by the budget deficit which is larger than that when full employment is maintained. Also, we show that the budget deficit equals the increase in the savings between generations.

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