Abstract
This paper outlines how deficit‐neutral fiscal settings, via their impact on the growth/distribution equation, can play a positive role in minimizing deviant macroeconomic performance. The conventional Solow‐Swan model of economic growth assigns no role to the standard instruments of fiscal policy in influencing the equilibrium growth path. In the model presented here, government fiscal policy–in the form of tax and transfer rates–is shown to have real effects on the long‐term growth path of the unionized macroeconomy, even when the budget is permanently balanced and policy is fully announced.
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