Open Access Journal Article

Budget deficit and money holding when consumers live forever in an endogenous growth model

by Yasuhito Tanaka a,* orcid
a
Faculty of Economics, Doshisha University, Kyoto, Japan
*
Author to whom correspondence should be addressed.
JEA  2024, 81; 3(4), 81; https://doi.org/10.58567/jea03040007
Received: 12 October 2023 / Accepted: 22 November 2023 / Published Online: 15 December 2024
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Abstract

In this paper I will show that budget deficit (or fiscal deficit) is necessary to achieve full employment under constant prices or inflation, using a model of endogenous growth in which consumers hold money for the reason of liquidity and live forever. Budget deficit need not be offset by future budget surpluses. I consider the continuous time case by taking the limit of the discrete time case when the time interval approaches zero. A continuous time dynamic model seems to be more general than a discrete time model. When the actual budget deficit is greater (smaller) than the value which is necessary and sufficient for full employment under constant prices, an inflation (a recession) occurs. The main argument of this paper is that a growing economy requires the continuation of budget deficit, and that we should not think of paying off the resulting government debt with taxes.

Keywords: Budget deficit; endogenous growth model; infinitely living consumers; continuous time model; functional finance;
Copyright: © 2024 by Tanaka. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

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ACS Style
Tanaka, Y. Budget deficit and money holding when consumers live forever in an endogenous growth model. Journal of Economic Analysis, 2024, 3, 81. https://doi.org/10.58567/jea03040007
AMA Style
Tanaka Y. Budget deficit and money holding when consumers live forever in an endogenous growth model. Journal of Economic Analysis; 2024, 3(4):81. https://doi.org/10.58567/jea03040007
Chicago/Turabian Style
Tanaka, Yasuhito 2024. "Budget deficit and money holding when consumers live forever in an endogenous growth model" Journal of Economic Analysis 3, no.4:81. https://doi.org/10.58567/jea03040007
APA style
Tanaka, Y. (2024). Budget deficit and money holding when consumers live forever in an endogenous growth model. Journal of Economic Analysis, 3(4), 81. https://doi.org/10.58567/jea03040007

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