The Effect of Money-Financed Policy for Fiscal Reform

Abstract

This study analyzes the effect of a money-financed policy for fiscal reform. We introduce a realistic setting in which real output is not given by an exogenous variable, but is determined by effective demand in a monetary growth model. Using this model, we compare the effects of the money-financed policy for fiscal reform with the effects of various policies to prevent increasing fiscal deficit. We conclude that the money-financed policy is the most desirable from the viewpoint of curbing the fiscal deficit and raising gross domestic product.