Some economists see helicopter money as a free lunch, because it can prompt growth without requiring higher debt financing. This column argues that if there are costs associated with the permanent injection of cash into the economy, they would diminish its effectiveness.
Biagio Bossone, 05 September 2016
Peter Temin, David Vines, 14 November 2014
The current debate on the efficacy of Keynesian stimulus mirrors the resistance Keynes met with when initially advocating his theory. This column explains the original controversy and casts today’s policy debate in that context. Now that concepts of Ricardian equivalence and the fiscal multiplier are formally defined, we are better able to frame the arguments. The authors argue that a simple model of the short-run economy can substantiate the argument for stimulus.
Thomas Grennes, Andris Strazds, 28 February 2013
Can European countries share their debts? This column argues that higher government indebtedness means larger household net financial assets. Thus, any pooling of European legacy debt would be considered unacceptable by countries with less government debt unless it also involved the pooling of households’ financial assets. Yet, this would be legally and technically insurmountable. The EU must face forced Ricardian equivalence: the countries with the largest legacy-debt burdens must reduce them by increasing the tax burden or, alternatively, reduce their budget expenditure.