In the article below we will try to consider the multiplicative theory of public spending, which during the time of the Keynesian teachings caused a lot of resonance and controversy. The topic will be interesting to everyone who is not indifferent to the modern economy, since under the precarious policies of various powers it is more relevant than ever.
The role of multiplier theory in modern economics
Often, in order for a country to be able to substantiate its policy in the economic aspect, a number of macroeconomic instruments are used. The multipliers of government spending are one of the components of this broad list, and therefore have an impressive theoretical background. For several centuries, many scientists have tried to uncover the meaning of this concept and use it within practical applications.
In a broad sense, the multiplier shows an increase in economic indicators. And government spending in Russia is no exception. Representatives of Keynesian macroeconomic doctrine approached this concept more deeply, and it was they who reached the conclusion that this tool shows a direct relationship between the dynamics of national wealth and the level of well-being of the country's population, regardless of the direction of the fiscal policy of the latter.
Offline costs and multiplier
The state and the economy are closely interconnected, therefore it is not a secret for anyone that any changes in one institution always entail a certain dynamics of individual values of another. This process can be called induction, since only a small push of any of the financial instruments gives rise to a number of processes in the whole country.
So, for example, the autonomous expenditures of the state in the multiplicative theory are explained by the relationship with changes in the dynamics of the labor market. In other words, if the government incurs certain costs in the context of some places of their occurrence, one can immediately observe the characteristic growth of citizens' incomes. And, accordingly, an increase in employment. To obtain a quantitatively sound picture, it is enough to correlate the dynamics of these indicators with each other.
Investment costs
The structure of government spending is quite extensive, so you should pay due attention to the investment activity of the country, which is the basis of a healthy competitive economy.
The multiplier of investment costs shows the ratio of the dynamics of the level of investments in a particular innovative business to the level of variable transaction costs. Moreover, it is considered correct to take into account only financial flows excluded from gross national income.
In other words, according to a similar technique, we will be able to track the level of expenses incurred by the state in order to improve technological and scientific processes in the country, as well as their share in total economic flows. In general, there is nothing complicated in this dynamics - in the absence of investments, the expense level will be equal to zero, but with investment growth, it will increase.
Employment Market Expenses
The multiplier of public spending in the aspect of the labor market is a separate neo-Keynesian teaching that is difficult to compare with any other area. Since, if earlier we positioned the total costs of the state as a secondary phenomenon, now we will see what investment policy can entail, in addition to the usual results.
Trite, but few manage to track the following relationship. Employment market spending is significantly reduced at a time when investment costs are rising. It follows that the welfare of the population is increasing, and accordingly, the demand for basic necessities (equipment, clothing, furniture) is expanding, giving rise to a positive trend in the change in the income of their producers. In other words, investment in one area of the economy entails an increase in profits in another.
Country fiscal costs
The fiscal factor of government taxes and expenditures indicates the dynamics of changes in the level of output in the manufacturing sector, depending on the growth of the tax burden. As a rule, this ratio is negative, since few business representatives want to give part of their net profit in favor of budget shares.
Another thing, if we are talking, for example, about a differentiated tax on state of emergency or personal income. In this case, the burden is imposed in stages - depending on the financial level of the object: the higher the welfare - the lower the rate. But, as modern practice shows, in a market economy, this theory is just a utopia, and has nothing to do with modern realities.
Balanced budget for national spending
The multipliers of government spending in their pure form show the dynamics of changes in the value of the gross national product, depending on how much of the state treasury was used up for the purchase of various types of products. Also, this indicator is inversely proportional to the marginal consumer inclination of the population. This can be explained by such an increase in budget revenue, when, while reducing its expenses, part of its profit is limited to the previous series of items.
Thus, it is possible to derive a balanced budget formula: national spending can grow by a certain amount (let's call it A), which is caused by the combined reduction of the tax burden for entrepreneurs, and this, in turn, is fraught with an increase in net profit of entrepreneurs by A units.
Foreign trade costs of the country
The multiplier of public spending (the measurement formula varies depending on the key component, the dynamics of which we are trying to determine) also plays a significant role in shaping an open economic policy. The latter is realized only through the practical use of export-import operations. Therefore, we can say with confidence that foreign trade does not occupy the last, but rather a key role in the formation of costly articles of state economic policy.
In a multiplicative theory, it is worth noting that the expenses incurred by a country for the implementation of export-import operations aimed at indirectly interfering in the balance of another country directly affect the value of the gross national product, which is a purely internal instrument.
Thus, the magnitude of the multiplier in the aspect of foreign trade is defined as the ratio between the quantitative changes in GNP and the costs of open operations carried out outside the country.
