Kalecki on Budget Deficits and the Possibilities for Full Employment

Sawyer, Malcolm

doi:10.1080/09538259.2020.1831203

Cited by 12 publications

(6 citation statements)

References 23 publications

(10 reference statements)

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“…The finding seems to agree with the arguments by some Post-Keynesian and Kaleckian thinkers, such as Watts and Sharpe (2013) and Sawyer (2020), respectively, who argue that budget deficits have a positive income effect that tends to…”

Section: Introductionsupporting

confidence: 90%

Do fiscal deficits influence private savings in South Africa? An empirical note

Marire

2023

J. econ. financ. sci.

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Orientation: The neoclassical loanable funds theory predicts that fiscal deficits reduce the pool of available savings in the economy, but heterodox scholarship disputes the claim.Research purpose: The paper sets out to test the relationship between fiscal deficits and private savings.Motivation for the study: Scholars are divided on whether corporate South Africa is building up excess savings, with some arguing that it is not and others arguing that it is because of mistrust of government and uncertainty largely. The trends of net private savings and fiscal deficits suggest that something contrary to the postulation of the neoclassical loanable funds theory could be happening in the South African context.Research approach/design and method: The paper used data for the period 1960–2021 within the Toda-Yamamoto vector autoregressive modelling framework.Main findings: The results show that fiscal deficits increase savings but reduce interest rates in line with the heterodox view that the financial asset creation effect of debt-financed deficits improves savings and reduces interests through the liquidity channel.Managerial/practical implications: The lesson for policy is that fiscal deficits are healthy for the economy. However, the government must manage them at some reasonable level to maintain a constant flow of net financial assets to the private sector, thus bolstering savings. An unhealthy pursuit of fiscal surpluses can shift deficits to households and firms, and breed systemic financial instability.Contribution/value-added: The paper contributed to a nuanced understanding of the role of fiscal deficits in expanding savings, which runs counter to the theoretical underpinnings of fiscal conduct that pursues budget surpluses.

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Section: Introductionsupporting

confidence: 90%

Do fiscal deficits influence private savings in South Africa? An empirical note

Marire

2023

J. econ. financ. sci.

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“…. In the resulting global recession, budget deficits rose as economic activity (and thereby tax receipts fell) and as governments boosted their expenditure to provide income support and business rescue packages (Sawyer, 2020) .…”

Section: Comparison Of Budget Deficits In Certain Countriesmentioning

confidence: 99%

“…George Osborne (2010) argued that "There is a recognition that the scale of the deficit and the rapid increase in the national debt cannot safely be ignored, and that public expenditure will have to be cut." He argued that notions that expansion fiscal policy would reduce unemployment missed the importance of expectations and confidence (Sawyer, 2020).…”

Section: Fiscal Policies Of the Coalition Government In Fighting With...mentioning

confidence: 99%

United Kingdom’s budget deficit in 2010s and Government’s financial policies: analysis and implications

Tek

2023

JGEB

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This article delves into the intricate nature of the United Kingdom's (UK) budget deficits throughout the 2010s and explores the government's responses to address this fiscal challenge. The article also sheds light on the fiscal policies adopted by the coalition government, formed due to the need for a collective approach to tackle the deficit. These policies encompassed tax increases, reductions in public benefits and investments, and aimed to balance the structural current account deficit by 2015–16. The government's approach aligns with Keynesian macroeconomic doctrine, advocating for government intervention in the economic landscape. However, the article raises questions about the efficacy of these policies in entirely mitigating the deficit. The article claims that while the deficit persisted as a concern, the government achieved a significant reduction during this period, showcasing both challenges and accomplishments in addressing the UK's budget deficit.

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“…More recently, from a Kaleckian point of view, Sawyer (2020) propounded that government has to maintain permanent fiscal deficits to achieve full employment. Fiscal deficits, through the multiplier process, raise income, and so, savings to the level that ensures that aggregate investment and aggregate savings are in equilibrium.…”

Section: The Heterodox Link Between Fiscal Deficit and Unemploymentmentioning

confidence: 99%

“…The picture depicted in Figure 1 suggests that fiscal consolidation, among other factors, delivered unemployment (Alenda-Demoutiez & Mügge 2020; Hirsch & Hines 2005;Padayachee 2006). Elson (2013), Watts and Sharpe (2013), Kelton (2015) and Sawyer (2020) maintain that fiscal consolidation always and everywhere generates unemployment and compounds fiscal deficits. The idea in the critique is that fiscal consolidation undermines growth and tends to worsen debt dynamics, whereas expansionary fiscal policy stimulates growth, employment, tax revenue and promotes fiscal sustainability (Ribeiro & Lima 2019;Uxó, Álvarez and Febrero 2018;Watts & Sharpe 2013).…”

Section: Introductionmentioning

confidence: 99%

Relationship between fiscal deficits and unemployment in South Africa

Marire

2022

J. econ. financ. sci.

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Practical/managerial implications: Fiscal authorities have to use fiscal deficits creatively in managing unemployment to create a balanced economy. The fiscal balance, up to a threshold, between 0.8% (surplus) and 1.9% (deficit) of gross domestic product (GDP) in the short term and between 1.7% (deficit) and 1.9% (deficit) in the long term reduces unemployment as per the estimates of the study. Contribution/value-add:The finding that fiscal deficits increase unemployment does not justify a weak fiscal policy stance. The finding that fiscal deficits reduce unemployment up to a point before they begin to increase it in the long-term complements existing literature, which shows that South Africa's government expenditure to GDP ratio has exceeded its optimal level.

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Kalecki on Budget Deficits and the Possibilities for Full Employment

Cited by 12 publications

References 23 publications

Do fiscal deficits influence private savings in South Africa? An empirical note

Do fiscal deficits influence private savings in South Africa? An empirical note

United Kingdom’s budget deficit in 2010s and Government’s financial policies: analysis and implications

Relationship between fiscal deficits and unemployment in South Africa

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