The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Balanced Budget Multiplier

  • M. H. Peston
Reference work entry


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.

This is a preview of subscription content, log in to check access.


  1. Gelting, J. 1941. Nogle Bemaerkninger om Finansieringen af offentlig Virksomhed. Nationalökonomisk Tidsskrift 79(5): 293–299.Google Scholar
  2. Haavelmo, T. 1945. Multiplier effects of a balanced budget. Econometrica 13(October): 311–318.CrossRefGoogle Scholar
  3. Peston, M.H., and W.J. Baumol. 1955. More on the multiplier effects of a balanced budget. American Economic Review 45(March): 140–148.Google Scholar
  4. Turvey, R. 1953. Some notes on multiplier theory. American Economic Review 43: 275–295.Google Scholar
  5. Wallich, H.C. 1944. Income-generating effects of a balanced budget. Quarterly Journal of Economics 59(November): 78–91.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • M. H. Peston
    • 1
  1. 1.