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The Keynesian Multiplier Effect Reconsidered

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  • Yoshiyasu Ono
Abstract
The Keynesian multiplier effect is reinterpreted and several issues that may have misled assessments of the effect of fiscal spending are discussed. It is shown that even in the textbook Keynesian framework some transfer policy 'reduces' aggregate demand and that publ works spending may completely crowd out private consumption. Useless public works are found to be equivalent to transfers although they increase accounting national income more than transfers do. The net effect of fiscal spending on national benefits is explored and shown to equal only the direct benefit created by the spending.

Suggested Citation

  • Yoshiyasu Ono, 2009. "The Keynesian Multiplier Effect Reconsidered," ISER Discussion Paper 0730, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:0730
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    File URL: https://www.iser.osaka-u.ac.jp/library/dp/2009/DP0730.pdf
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    References listed on IDEAS

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    1. Gupta, Sanjeev & Clements, Benedict & Baldacci, Emanuele & Mulas-Granados, Carlos, 2005. "Fiscal policy, expenditure composition, and growth in low-income countries," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 441-463, April.
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    8. Ono, Yoshiyasu, 2001. "A Reinterpretation of Chapter 17 of Keynes's General Theory: Effective Demand Shortage under Dynamic Optimization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(1), pages 207-236, February.
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    3. Vincent, Jeffrey R., 2012. "Ecosystem services and green growth," Policy Research Working Paper Series 6233, The World Bank.
    4. Khemraj, Tarron, 2011. "The Non-Zero Lower Bound Lending Rate and the Liquidity Trap," MPRA Paper 42030, University Library of Munich, Germany, revised 01 May 2012.
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    6. Ihor Kendiukhov, 2024. "Present Value of the Future Consumer Goods Multiplier," Papers 2402.01938, arXiv.org.
    7. Nakajima, Tetsuya, 2013. "Industrial Development, Polarisation, and Fiscal Policy in an Underemployment Economy," MPRA Paper 54908, University Library of Munich, Germany.
    8. Murota, Ryu-ichiro & Ono, Yoshiyasu, 2015. "Fiscal policy under deflationary gap and long-run stagnation: Reinterpretation of Keynesian multipliers," Economic Modelling, Elsevier, vol. 51(C), pages 596-603.

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