Public Investment, Growth and Fiscal Constraints

Public Investment, Growth and Fiscal Constraints

Challenges for the EU New Member States

Edited by Massimo Florio

This book makes a unique contribution in advancing understanding of the fiscal condition and growth potential of the New Member States of the European Union. It provides new data, policy evaluation, and offers national and regional perspectives. The core research questions are the effect of public investment in the context of macroeconomic disequilibrium and how it is possible to finance capital accumulation in the present and future conditions of mounting public sector debt.

Chapter 3: Public Investment under Disequilibrium: A Post Keynesian Viewpoint

Massimo Cingolani

Subjects: economics and finance, public finance, regional economics, urban and regional studies, regional economics

Extract

Massimo Cingolani* INTRODUCTION 1. If the neoclassical optimum is used as a reference concept for economic equilibrium, it should be recognized as a very specific ideal case. Real life policy choices would then have to be assessed in a disequilibrium context, with specific analytical tools. The chapter discusses the evaluation of economic policies in the field of public investment in a disequilibrium context, where underemployment of the labour force and a suboptimal utilization of the resources and productive capacity prevail. It is argued that the model of the monetary circuit as developed more particularly by Parguez and Graziani (Halevi and Taouil, 2002), put into the more general perspective of post Keynesian analysis (Eichner and Kregel, 1975), is useful to illustrate policy choices under disequilibrium. In the canonical version of the neoclassical model, given convex technology and preferences, equilibrium coincides with the optimum and can be reached through the decentralized decisions of atomistic producers and consumers that take prices as given parameters, in a barter economy with no State. This optimum is a reference for normative analysis. In a context where the State is present it leads naturally to a presumption that any economic policy will be harmful, as it will cause a departure from some conditions for optimality. Usually ‘out of equilibrium’ positions are ignored because of their transient nature, despite the fact that in general it is not possible to demonstrate the stability of the neoclassical equilibrium under sufficiently general conditions, which would be a prerequisite for its application...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information