ABSTRACT
This chapter analyses some of the real-world consequences of a focus at structural public sector deficits with regard to macroeconomic imbalances not only during the present economic crisis, but also in a longer-term perspective. The idea of using the structural budget balance4 as a guide for fiscal policy comes from the GEM. Within this model the macroeconomic market system is attracted by the predetermined private sector full structural employment with real investment being equal to private financial saving. Countries with decreasing private real investments have experienced excess private financial savings, causing higher unemployment and a public sector deficit. The neoclassical ideal is quite similar to the mainstream general equilibrium theory. This model builds on the axiomatic foundation of a natural structural balance in the private sector. Hence, by seemingly indisputable logic the conclusion is formulated that the public sector budget ought to be balanced.
