On Budget Deficit under Economic Growth : Towards a Mathematical Model of MMT

Recently, a school of thought called Modern Monetary Theory (MMT) has been attractingattention, but it has not received much theoretical or mathematical analysis. In this paper, weexamine the theoretical validity of the MMT argument using an overlapping generations(OLG) model that includes economic growth due to population growth, and give a generallypositive evaluation of MMT. The basic idea is that a certain level of continuous budget deficitis necessary to maintain full employment when the economy is growing, that inflation occurswhen the budget deficit exceeds that level, that a recession occurs when the budget deficitfalls below that level, and involuntary unemployment occurs. In order to recover from arecession, a budget deficit in excess of that level is required, and that deficit need not becovered by a future budget surplus. The same can be said for growth resulting fromtechnological progress