Fiscal Aggregation and the Limits of IS--LM--BP: Derivations, Aggregation Bias and Reproducible Adversarial Simulations (opens in new tab)

This paper develops a formal critique of scalar fiscal aggregation in the IS LM BP/Mundell Fleming framework. It shows that when fiscal policy is composed of heterogeneous instruments current purchases, public investment and transfers to different households the aggregate variable G is sufficient for output analysis only under a restrictive gradient condition: all instruments must have identical marginal effects on output. The paper proves this ...