1992 | OriginalPaper | Chapter
Continuous Budget Balance
Author : Professor Dr. Michael Carlberg
Published in: Monetary and Fiscal Dynamics
Publisher: Physica-Verlag HD
Included in: Professional Book Archive
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So far we started from the premise that government purchases and the tax rate are given exogenously. In this situation, the government budget constraint equals B = G + rD − t(Y + rD). And the budget deficit adds to public debt $$\dot{D}$$ = B. Now, as an exception, we shall posit that the government continuously adjusts public consumption so as to always balance the budget. Under these circumstances, the government budget constraint simplifies to G = tY. As a corollary, the budget balances B = 0, and there will be no public debt D = 0.