Can Fiscal Spending be Contractionary in the Neoclassical Economy

Utilizing a two-sector, general equilibrium model with variable returns-to-scale technology, the authors examine the effects of fiscal spending on the goods-price ratio, private income, government income, and national income in a neoclassical economy. The fiscal policy is contractionary when the unfavorable price-induced production effect via a smaller elasticity of the returns to scale outweighs the gain from the private appreciation of government spending. With identical (or constant) returns to scale and zero appreciation of government spending, fiscal policy is ineffective. Copyright 1993 by The London School of Economics and Political Science

Economic growth · Economics · Fiscal policy · Government (linguistics) · Government spending · Macroeconomics · Market economy · Monetary economics · Private sector · Production (economics) · Returns to scale · Welfare · Economic theories and models · Fiscal Policies and Political Economy · Fiscal Policy and Economic Growth

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