BALANCED BUDGET MULTIPLIER
BALANCED BUDGET MULTIPLIERS
Introduced by Haavelmo
An equal increase in govt expenditure and net tax revenue raises the equilibrium income. And an equal decrease will lower the equilibrium income,
The equal change in govt spending and taxation results in Haavelmo effect which has the value one.
Govt spending multiplier = 1/(1-mpc )
Tax multiplier = (-mpc)/(1-mpc)
Balanced budget multiplier = 1/(1-mpc ) + (-mpc)/(1-mpc) = (1-mpc)/(1-mpc) = 1