The Inverted Haavelmo Effect and the Effects of Fiscal Policies in the United States, the United Kingdom, Germany and the Netherlands

  • Anthonie Knoester
Part of the Confederation of European Economic Associations Conference Volumes book series (CEEA)

Abstract

Taxation can have a major impact on economic growth, by the working of the inverted Haavelmo effect. This is the occurrence of a negative balanced-budget multiplier instead of a positive Keynesian one, as a result of simultaneous increase in public spending and taxation. Then the result of an expanding public sector, financed by extra taxes and/or social security contributions, will be a lower rate of economic growth and less employment than in the absence of such expansion. This chapter focuses on the policy implications of the inverted Haavelmo effect. First, the background of the inverted Haavelmo effect will be discussed briefly. Next, the effects of the actual increase of public spending and taxation in the 1970s and 1980s will be analysed for Germany, the Netherlands, the United Kingdom and the United States. Section 5.4 deals with the economic consequences of the Kohl, Lubbers, Thatcher and Reagan administrations. The chapter ends with a section in which some policy recommendations for the 1990s are drawn.

Keywords

Europe Income Expense OECD Monopoly 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Blanchard, O. J. (1987) ‘Reaganomics’, Economic Policy, no. 5, October.Google Scholar
  2. Currie, D. (1987) ‘Comment on Reaganomics’, Economic Policy, no. 5, October.Google Scholar
  3. Haavelmo T. (1945) ‘Multiplier Effects of a Balanced Budget’, Econometrica, vol. 13, pp. 311–18.CrossRefGoogle Scholar
  4. Hellwig, M. and M. Neumann (1987) ‘Germany under Kohl’, Economic Policy, no. 5, October.Google Scholar
  5. Knoester, A. (1983) ‘Stagnation and the Inverted Haavelmo Effect: Some International Evidence’, De Economist, vol. 131, no. 4, pp. 548–84.CrossRefGoogle Scholar
  6. Knoester, A. (1984) Negative Consequences of Public Sector Expansion in the US and Europe, Occasional Paper, November, American Enterprise Institute for Public Policy Research, Washington DC.Google Scholar
  7. Knoester, A. (1986) ‘Okun’s Law Revisited’, Weltwirtschaftliches Archiv, vol. 122, no. 4, pp. 657–66.CrossRefGoogle Scholar
  8. Knoester, A. (1987) Supply-Side Economics and the Inverted Haavelmo Effect, Research Memorandum 8701, University of Nijmegen, Institute of Economies, Nijmegen.Google Scholar
  9. Knoester, A. (1988) ‘Supply-Side Policies in Four OECD Countries’. In H. Motamen (ed.), Economic Modelling in the OECD Countries ( London: Chapman & Hall ).Google Scholar
  10. Knoester, A. (1989) Economische politiek in Nederland (Economic policy in the Netherlands) ( Leiden/Antwerpen: H. E. Stenfert Kroese BV).Google Scholar
  11. Knoester, A. (1991) ‘Supply Side Economics and the Inverted Haavelmo Effect’. In Phelps, E. S. (ed), Recent Developments in Macroeconomics, vol. II, the International Library of Critical Writings in Economics 13, ( Aldershot/Brookfield: Edward Elgar Publishing ).Google Scholar
  12. Knoester, A. and N. Van der Windt (1987) ‘Real Wages and Taxation in Ten OECD Countries’, Oxford Bulletin of Economics and Statistics, vol. 49, no. 1, special issue on wage inflexibility, pp. 151–69.CrossRefGoogle Scholar
  13. Knoester, A. and A. Kolodziejak (1988) Economic Growth in Europe, Japan and the United States: Policy Options for the 1990s, Research Memorandum 8804, University of Nijmegen, Institute of Economics, Nijmegen.Google Scholar
  14. Knoester, A. and J. van Sinderen (1984) ‘A Simple Way of Determining the Supply Side in Macroeconomic Models’, Economics Letters, vol. 16, nos 1–2, pp. 83–91.CrossRefGoogle Scholar
  15. Malinvaud, E. (1977) The Theory of Unemployment Reconsidered ( Oxford: Basil Blackwell).Google Scholar
  16. Matthews, K. and P. Minford (1987) ‘Mrs. Thatcher’s Economic Policies 1979–87’, Economic Policy, no. 5, October.Google Scholar
  17. Niskanen, W. A., (1988) Reaganomics: an Insider’s Account of the Policies and the People (New York, Oxford: Oxford University Press).Google Scholar
  18. OECD (1978) Public Expenditure Trends Paris.Google Scholar
  19. Pen, J. (1952) ‘A General Theory of Bargaining’. American Economic Review, vol. 4, no. 1 (March) pp. 24–42.Google Scholar
  20. Phelps, E. S. (1990) Seven Schools of Economic Thought ( Oxford: Oxford University Press).CrossRefGoogle Scholar
  21. Phillips, A. W. (1958) ‘The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957’, Economica, vol. 25, no. 100 (November) pp. 283–99.Google Scholar
  22. Sinderen, J. van (1989) De theorie en de praktijk van Reaganomics (The Theory and Practice of Reaganomics), Rotterdamse Monetaire Studies no. 35, Rotterdam.Google Scholar
  23. Sinderen, J. van (1990) Het sociaal-economicsh beleid in de tweede helft van de twintigste eeuw (Macroeconomic Policy in the Second Half of the 20th Century) ( Groningen: Wolters-Noordhoff).Google Scholar
  24. Zeuthen, F. (1930) Problems of Monopoly an Economic Warfare (London).Google Scholar

Copyright information

© Confederation of European Economic Associations 1993

Authors and Affiliations

  • Anthonie Knoester

There are no affiliations available

Personalised recommendations