Abstract
The paper analyzes fiscal policy in a model which differs from the conventional analyses in the following ways: 1) It is based on the intertemporal maximizing behavior of individual agents. 2) The government is assumed to actively balance its budget the long run. 3) Government expenditure is on useful goods and services. The welfare effects of fiscal policy are also examined. The principal conclusions are that fiscal policy is effective in the short run but the effects on both output and welfare may be perverse; and, that with full employment in the long run, fiscal policy still has allocative effects and so influences welfare.
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