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Money-financed Fiscal Policy in a Growing Economy

Ettore F. Infante and Jerome L. Stein
Journal of Political Economy
Vol. 88, No. 2 (Apr., 1980), pp. 259-287
Stable URL: http://www.jstor.org/stable/1837291
Page Count: 29
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Money-financed Fiscal Policy in a Growing Economy
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Abstract

The paper examines the trajectories of the economic variables when government expenditures are financed by changes in the money stock. It is shown that government budget balance is not a condition for equilibrium. If the nominal rate of interest changes by about as much as the expected rate of inflation, a rise in real government purchases per capita has the following effects: There will be a positive impact upon output per capita but steady-state output per capita and the capital intensity will decline, and there will be a rise in the inflation tax on real balances and steady-state rate of inflation.

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