Implications of the Government Budget Constraint.

The article discusses the implications of government budget constraints on macroeconomic theory. Empirical research is conducted to determine the relation of tax revenue to price levels or real income as it is dependent on the institutional nature of the tax structures. Capital stock increases output but creates a decline in the rate of return to capital as well as the interest rate. However, monetarists of the Chicago School of Economics believe continued levels of government spending do not affect a stabilized economy.