Summary
Neither monetarists, nor Keynesian nor new classical economists analyse balanced-budget financing in a way justified by the facts. This paper tries to bridge this gap somewhat. Balanced-budget multipliers are analysed for Germany, the Netherlands, the United Kingdom and the U.S.A. with empirical models based on a synthesis of supply and demand. It is shown that for these countries neither the classical balanced-budget multiplier of zero, nor the positive Keynesian one is valid, but rather a negative balanced-budget multiplier. This negative multiplier is called the inverted Haavelmo effect, because its policy implications reach further than the traditional Keynesian and classical contentions on balanced-budget financing.
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I am indebted to Nico Boot, Wim Groot and Jarig van Sinderen for their able assistance and to Peter de Boer and Bert Greve for their accurate provision of the data. Helpful comments were received from members of the Directorate for General Economic Policy and from Professors J. Pen, Th.A. Stevers and J. Tinbergen. A background version of this article — containing more data, the coefficients and a detailed description of the supply side in the four models used — is available on request referring to A. Knoester (1983).
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Knoester, A. Stagnation and the inverted Haavelmo effect: Some international evidence. De Economist 131, 548–584 (1983). https://doi.org/10.1007/BF02109409
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DOI: https://doi.org/10.1007/BF02109409