A Simulation Model of Macroeconomic of Deficit

In This Paper We Present a Closed Version of a Macroeconomic Simulation Model. We Use This Model to Analyse the Effect of an Increase in the Government Deficit on the Short Run Behaviour of the Economy and on Its Steady State Level. As Long As Households Do Not Fully Discount Future Taxes, We Find That There Is a Significant Resource Crowding-Out Effect in the Long Run Associated with an Increase in Deficit. These Results Suggest That the Short Run Gains From Stabilization Measures Are Small Compared to the Negative Effect on Potential Output.