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Lessons from Failure: Fiscal Policy, Indulgence and Ideology

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  • Wren-Lewis, Simon

Abstract

Macroeconomic theory clearly suggests that at the zero lower bound, fiscal contraction will reduce output and slow any recovery. Yet in 2010 the focus of fiscal policy in many countries switched from supporting activity to reducing debt, despite the fact that the recovery from recession often appeared weak. While high levels of public debt can explain this switch in some countries, it does not provide a satisfactory account in others. In addition, the possibility of using balanced budget fiscal expansion or tax switches that bring forward spending remain largely unexplored. This paper suggests that policy has been influenced by an opposition to countercyclical fiscal policy which has ideological roots.

Suggested Citation

  • Wren-Lewis, Simon, 2011. "Lessons from Failure: Fiscal Policy, Indulgence and Ideology," National Institute Economic Review, National Institute of Economic and Social Research, vol. 217, pages 31-46, July.
    • Handle: RePEc:cup:nierev:v:217:y:2011:i::p:r31-r46_13
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    1. repec:hal:spmain:info:hdl:2441/dambferfb7dfprc9lip1oi0sn is not listed on IDEAS
    2. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09j0h168m2j is not listed on IDEAS
    3. Catherine Mathieu & Henri Sterdyniak, 2012. "Faut-il des règles de politique budgétaire ?," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(7), pages 299-346.
    4. Catherine Mathieu & Henri Sterdyniak, 2013. "Do we need fiscal rules?," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 189-233.
    5. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09j0h14g91k is not listed on IDEAS
    6. repec:hal:spmain:info:hdl:2441/eo6779thqgm5r489m6u1i2a0o is not listed on IDEAS

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