Income Growth in Mixed Open Economies
W E shall in this chapter take up the complications arising from the government sector and the foreign-trade sector. However, the economic activities of the government agencies (federal, state and local) had best be subsumed under the single heading of fiscal operations, as far as a modern democratic mixed economy is concerned. We are mainly concerned with the possible effects of government expenditure and tax changes on the productive capacity of a mixed economy, irrespective of the particular motives underlying those fiscal changes. Likewise, we are interested in the possible effects of international trade and capital movements on the productive growth of an open system with foreign economic relations, regardless of any political or diplomatic motivations that might be involved in those movements. In both cases the basic growth mechanism discussed in the preceding chapter will be found applicable, albeit with appropriate modifications. We shall treat these cases separately, however.