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Destabilizing austerity: Fiscal policy in a BOP-dominated macrodynamics

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  • Neto, Antonio Soares Martins
  • Porcile, Gabriel

Abstract

A contractionary fiscal policy is the usual policy advice given to countries that experience deficits in current account. However, under certain circumstances, fiscal austerity may worsen external disequilibrium. This paper discusses the conditions in which instability may emerge using a Keynesian model which highlights the crucial role of public investment for structural change and competitiveness in developing economies. In addition, the paper addresses the interactions between fiscal policy, the exchange rate policy and industrial policy. It is argued that a virtuous circle between these variables is possible. A competitive real exchange rate combined with an industrial policy aimed at increasing the diversification and technological intensity of exports may make compatible growth and income distribution.

Suggested Citation

  • Neto, Antonio Soares Martins & Porcile, Gabriel, 2017. "Destabilizing austerity: Fiscal policy in a BOP-dominated macrodynamics," Structural Change and Economic Dynamics, Elsevier, vol. 43(C), pages 39-50, December.
    • Handle: RePEc:eee:streco:v:43:y:2017:i:c:p:39-50
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    Citations

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    Cited by:

    1. Dávila-Fernández, Marwil J. & Sordi, Serena, 2019. "Distributive cycles and endogenous technical change in a BoPC growth model," Economic Modelling, Elsevier, vol. 77(C), pages 216-233.
    2. Fraga, Jefferson Souza & Resende, Marco Flávio da Cunha, 2022. "Infrastructure, conventions and private investment: An empirical investigation," Structural Change and Economic Dynamics, Elsevier, vol. 61(C), pages 351-361.
    3. Botta, Alberto & Porcile, Gabriel & Spinola, Danilo & Yajima, Giuliano Toshiro, 2023. "Financial integration, productive development and fiscal policy space in developing countries," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 175-188.
    4. VODĂ Alina Daniela & DOBROTĂ Gabriela & CRISTEA Loredana Andreea, 2020. "Heterogeneity Of Fiscal Policies," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 257-264, December.
    5. Dávila-Fernández, Marwil J. & Oreiro, José L. & Dávila Dávila, Mario W., 2018. "Endogenizing non-price competitiveness in a BoPC growth model with capital accumulation," Structural Change and Economic Dynamics, Elsevier, vol. 44(C), pages 77-87.
    6. Botta, Alberto & Spinola, Danilo & Yajima, Giuliano & Porcile, Gabriel, 2023. "Pasinetti, Debt Sustainability and (Green) Structural Change at the Time of Global Finance: An Emerging and Developing Countries’ Perspective," CAFE Working Papers 25, Centre for Accountancy, Finance and Economics (CAFE), Birmingham City Business School, Birmingham City University.
    7. Guizzo, Danielle & Strachman, Eduardo & Dalto, Fabiano & Feijo, Carmem, 2018. "Financialisation and Development: how can emerging economies catch up?," MPRA Paper 87076, University Library of Munich, Germany.
    8. Luìs, Galindo & Giulio, Guarini & Gabriel, Porcile, 2020. "Environmental innovations, income distribution, international competitiveness and environmental policies: a Kaleckian growth model with a balance of payments constraint," Structural Change and Economic Dynamics, Elsevier, vol. 53(C), pages 16-25.
    9. Dávila-Fernández, Marwil J. & Sordi, Serena, 2019. "Path dependence, distributive cycles and export capacity in a BoPC growth model," Structural Change and Economic Dynamics, Elsevier, vol. 50(C), pages 258-272.

    More about this item

    Keywords

    011 BOP-dominated macrodynamics E62 F31 F43 Fiscal policy Real exchange rate Structural change;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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