[2] Other economists,[3] especially (but not limited to) those associated with Modern Monetary Theory (MMT), downplay the need for balanced budgets among countries that have the power to issue their own currency, and argue that government spending helps boost productivity, innovation and savings in the private sector.
Keynesian economics does not advocate for fiscal stimulus when the existing government debt is already significant.
Thus, the only constraint on expenditures is the inflation which it may generate if the economy is making full use of its capital and labour.. MMT advocates therefore argue for that budget deficits should be used to achieve full employment through a government employment program called a 'jobs guarantee'.
[8] In the United States, the fiscal conservatism movement believes that balanced budgets are an important goal.
"[12] Following the over-borrowing in both the public and private sector that led to the Swedish banking crisis of the early 1990s and under influence from a series of reports on the future demographic challenges, a wide political consensus developed on fiscal prudence.
Today the goal is 1% over the business cycle, as the retirement pension is no longer considered a government expenditure.
In 2015 George Osborne, the Chancellor of the Exchequer, announced that he intended to implement a law whereby the government must deliver a budget surplus if the economy is growing.
[13] Academics have criticised this proposal with Cambridge University professor Ha-Joon Chang saying the chancellor was turning a blind eye to the complexities of a 21st-century economy that demanded governments remain flexible and responsive to changing global events.
[15] Because of the multiplier effect, it is possible to change aggregate demand (Y) keeping a balanced budget.
Let the consumption function be: The goods market equilibrium equation is: where I is exogenous physical investment and NX is net exports.