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Fiscal policy: a strong macroeconomic role

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  • Philip Arestis

    (University of Cambridge)

Abstract

Current macroeconomics, the ‘New Consensus Macroeconomics’, downgrades significantly the role of fiscal policy as a stabilisation instrument of macroeconomic policy. This paper argues that fiscal policy deserves to be properly upgraded. More recent theoretical and empirical developments on the fiscal policy front are closely examined. This examination reveals that these developments lead to the conclusion that fiscal policy is not as ineffective as argued by the ‘New Consensus Macroeconomics’ proponents. On the contrary, it has a strong macroeconomic role. It is also the case that, in view of the ‘Great Recession’, financial stability has been shown to be very important in economic policy but had been ignored prior to it. The paper argues strongly that fiscal policy is actually a strong macroeconomic stabilisation instrument, especially so when it is coordinated not only with monetary policy but also and closely with financial stability policies – with such coordination-embracing income distribution. Fiscal policy should thereby be restored to its proper upgraded role in terms of economic policy. It is, therefore, high time economists and economic policymakers turned their attention more closely and seriously to this aspect and restored fiscal policy to its strong macroeconomic role.

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Bibliographic Info

Article provided by Edward Elgar in its journal Review of Keynesian Economics.

Volume (Year): 1 (2012)
Issue (Month): 0 ()
Pages: 93-108

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Handle: RePEc:elg:rokejn:v:0:y:2012:i:1:p93-108

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Web page: http://www.elgaronline.com/roke

Related research

Keywords: fiscal policy; coordination of fiscal and monetary/financial policies;

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Cited by:
  1. Jesús Ferreiro & Carmen Gómez & Felipe Serrano, 2013. "Mistakes in the Fiscal Policy in Spain before the Crisis," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(5), pages 577-592, September.
  2. Astarita, Caterina & Purificato, Francesco, 2013. "TARGET2 imbalances and the need for a lender of last resort," MPRA Paper 51124, University Library of Munich, Germany.

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