Government Spending, Budget Policy, and Wealth and Income Inequality in a Growing Monetary Economy

This paper compares the impact of government investment and government consumption expenditures on macroeconomic aggregates and inequality in an economy in which the government deficit is money-financed, while maintaining a fixed ratio of debt-money. Most real aggregate quantities are independent of the debt-money ratio, which has only weak short-run impacts on wealth and income inequality. We also investigate numerically the impact of these two forms of government expenditure on the macroeconomic aggregates and distributions. Though they have sharp contrasting effects in terms of the tradeoffs they entail, their impact is moderate. Our simulations suggests that there is scope for substantially more intensive government intervention in the recovery of the post-pandemic economy, without serious adverse consequences or encountering issues of sustainability