Balanced Budget Multiplier
The balanced budget multiplier theorem is concerned with changes in aggregate demand consequent on simultaneous and equal changes in government expenditure and taxation. The essence of the theorem is that the expansionary effect of the former exceeds the contractionary effects of the latter. Thus the net effect is positive rather than zero which the commonsense of pre-Keynesian economics suggested. In other words, a tax-financed increase in public expenditure would be expansionary rather than neutral.
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