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Deficits, growth, and the current slowdown: what role for fiscal policy?

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Author Info

  • THEODORE PELAGIDIS
  • EVANGELIA DESLI

Abstract

The hesitation of many conventional-wisdom economists to rely more aggressively on fiscal policy measures in order to keep their public finances more or less balanced may have contributed to the persisting current slowdown. We discuss the potential of active fiscal policies in stimulating growth focusing on the European experience. Recent contributions in this journal emphasized the role of expansionary fiscal policies not only during recessionary conditions but rather as a standard feature of the macroeconomic policy stance, arguing that budget deficits lead to higher business profits and, therefore, economic growth. We provide evidence pointing to a positive relationship between fiscal deficits and capital profitability. We conclude that the dogmatic aversion for budget deficits may be perilous.

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File URL: http://mesharpe.metapress.com/link.asp?target=contribution&id=MR4N5GFEPT3PNC1Q
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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 26 (2004)
Issue (Month): 3 (April)
Pages: 461-469

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Handle: RePEc:mes:postke:v:26:y:2004:i:3:p:461-469

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348

Related research

Keywords: capital profitability; deficits; Europe; fiscal policy;

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Citations

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Cited by:
  1. Elias Soukiazis & Pedro Cerqueira & Micaela Antunes, 2012. "Causes of the Decline of Economic Growth in Italy and the Responsibility of EURO. A Balance-of-Payments Approach," GEMF Working Papers 2012-03, GEMF - Faculdade de Economia, Universidade de Coimbra.
  2. Ram Sharan Kharel Ph.D., 2012. "Modelling and Forecasting Fiscal Policy and Economic Growth in Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 24(1), pages 1-15, April.
  3. Soukiazis, Elias & Cerqueira, Pedro A. & Antunes, Micaela, 2012. "Modelling economic growth with internal and external imbalances: Empirical evidence from Portugal," Economic Modelling, Elsevier, vol. 29(2), pages 478-486.
  4. repec:nrb:journl:v:24:y:2012:i:1:p:1 is not listed on IDEAS
  5. Elias Soukiazis & Eva Muchova & Pedro A. Cerqueira, 2014. "Is the Slovak Economy Doing Well? A Twin Deficit Growth Approach," GEMF Working Papers 2014-08, GEMF - Faculdade de Economia, Universidade de Coimbra.
  6. Ram Sharan Kharel Ph.D., 2012. "Modelling and Forecasting Fiscal Policy and Economic Growth in Nepal," NRB working Paper 09/2012, Nepal Rastra Bank, Research Department.
  7. Elias Soukiazis & Pedre André Cerqueira & Micaela Antunes, 2013. "The Effects of Internal and External Imbalances on Italy´s Economic Growth. A Balance of Payments Approach with Relative Prices No Neutral," GEMF Working Papers 2013-14, GEMF - Faculdade de Economia, Universidade de Coimbra.

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