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Re-evaluation the stabilization function of the fiscal policy (English)

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  • Georgi Manliev
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    Abstract

    The fiscal–monetary policy mix has been used as anticyclical tools in the stabilization policy. In the làst 10-15 years, the monetary policy became neutral and the fiscal policy transformed into pro-cyclical. As a result, large budget deficit emerged during the economic boom, which required debt financing and led to accumulation of significant government debt. Many countries have entered into debt fiscal crises. For going out of the vicious circle: permanent budget deficit, debt funding and growing public debt, changes are proposed in the model of conducting fiscal policy: creation of the fiscal reserves during economic upsurge, which has to be used for stimulating aggregate demand during crisis, instead debt financing; accepting the fiscal rules in order to discipline politicians in their fiscal decisions; accepting the low level of budget deficit in time of crisis, which has to be reached by budget expenditure cuts, instead tax rate increase. There are sufficient fiscal consolidation programmes, which testified the correctness of these changes, launched as optimal fiscal policy.

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    Bibliographic Info

    Article provided by Bulgarian Academy of Sciences - Economic Research Institute in its journal Economic Thought.

    Volume (Year): (2012)
    Issue (Month): 5 ()
    Pages: 30-54

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    Handle: RePEc:bas:econth:y:2012:i:5:p:30-54

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    1. Martin Feldstein, 2009. "Rethinking the Role of Fiscal Policy," American Economic Review, American Economic Association, American Economic Association, vol. 99(2), pages 556-59, May.
    2. James M. Poterba & Jürgen von Hagen, 1999. "Introduction to "Fiscal Institutions and Fiscal Performance"," NBER Chapters, National Bureau of Economic Research, Inc, in: Fiscal Institutions and Fiscal Performance, pages 1-12 National Bureau of Economic Research, Inc.
    3. Alberto Alesina & Guido Tabellini, 2005. "Why is Fiscal Policy often Procyclical?," CESifo Working Paper Series 1556, CESifo Group Munich.
    4. Adi Brender & Allan Drazen, 2008. "How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Panel of Countries," American Economic Review, American Economic Association, American Economic Association, vol. 98(5), pages 2203-20, December.
    5. James M. Poterba & Jürgen von Hagen, 1999. "Fiscal Institutions and Fiscal Performance," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number pote99-1.
    6. Torsten Persson & Guido Tabellini, 2004. "Constitutional Rules and Fiscal Policy Outcomes," American Economic Review, American Economic Association, American Economic Association, vol. 94(1), pages 25-45, March.
    7. Talvi, Ernesto & Vegh, Carlos A., 2005. "Tax base variability and procyclical fiscal policy in developing countries," Journal of Development Economics, Elsevier, Elsevier, vol. 78(1), pages 156-190, October.
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