Faulting Internationally Coordinated Fiscal Stimulus

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Author(s)
Makin, Tony
Griffith University Author(s)
Year published
2010
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Fiscal policy has been actively deployed globally by G20 governments to counter the impact of the global financial crisis on the real sectors of their economies. This coordinated fiscal response has involved a mix of new public expenditure, including on infrastructure, tax relief and increased income transfers to favoured groups. In the end, the case for fiscal stimulus rests on the presumption that it works in theory, along lines first proposed by Keynes. Yet, Keynesian fiscal activism founded on this presumption is contestable on numerous theoretical and practical grounds. This paper addresses key concerns about the ...
View more >Fiscal policy has been actively deployed globally by G20 governments to counter the impact of the global financial crisis on the real sectors of their economies. This coordinated fiscal response has involved a mix of new public expenditure, including on infrastructure, tax relief and increased income transfers to favoured groups. In the end, the case for fiscal stimulus rests on the presumption that it works in theory, along lines first proposed by Keynes. Yet, Keynesian fiscal activism founded on this presumption is contestable on numerous theoretical and practical grounds. This paper addresses key concerns about the consequences of using fiscal stimulus. It proposes that discretionary fiscal measures that have increased budget deficits and public indebtedness for economies worldwide entail significant macroeconomic costs and risks, and that, as a corollary, reducing unproductive public spending can be expansionary.
View less >
View more >Fiscal policy has been actively deployed globally by G20 governments to counter the impact of the global financial crisis on the real sectors of their economies. This coordinated fiscal response has involved a mix of new public expenditure, including on infrastructure, tax relief and increased income transfers to favoured groups. In the end, the case for fiscal stimulus rests on the presumption that it works in theory, along lines first proposed by Keynes. Yet, Keynesian fiscal activism founded on this presumption is contestable on numerous theoretical and practical grounds. This paper addresses key concerns about the consequences of using fiscal stimulus. It proposes that discretionary fiscal measures that have increased budget deficits and public indebtedness for economies worldwide entail significant macroeconomic costs and risks, and that, as a corollary, reducing unproductive public spending can be expansionary.
View less >
Journal Title
World Economics
Volume
11
Issue
3
Publisher URI
Copyright Statement
© 2010 Economic and Financial Publishing. The attached file is reproduced here in accordance with the copyright policy of the publisher. Please refer to the journal's website for access to the definitive, published version.
Subject
Macroeconomic Theory
Applied Economics