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The return of fiscal policy

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Author Info

  • Philip Arestis
  • Malcolm Sawyer

Abstract

This paper examines the implications of the experience with the financial crisis of August 2007 for fiscal policy and the use made of it. We briefly sketch the changing attitudes toward fiscal policy and the demise of arbitrary rules for the budget deficits and the reassertion of purposeful fiscal policy, that is fiscal policy for the purpose of helping to create the conditions for high levels of employment. Instead of a focus on debt overall, there should be consideration of the net balance sheet position. It is often argued that running a budget deficit places upward pressure on interest rates. We argue that in the context of the use of "functional finance," the ability of the deficit to in effect fund itself removes any underlying upward pressure on interest rates. We also deal with the issue of balance-of-payments constraints, and argue that under such circumstances the appropriate policy response is not to forgo fiscal policy but rather to tackle the balance-of-payments constraint.

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Bibliographic Info

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

Volume (Year): 32 (2010)
Issue (Month): 3 (April)
Pages: 327-346

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Handle: RePEc:mes:postke:v:32:y:2010:i:3:p:327-346

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

Related research

Keywords: budget deficits; fiscal policy; functional finance;

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Cited by:
  1. Peter Skott & Soon Ryoo, 2013. "Public debt in an OLG model with imperfect competition: long-run effects of austerity programs and changes in the growth rate," UMASS Amherst Economics Working Papers, University of Massachusetts Amherst, Department of Economics 2013-10, University of Massachusetts Amherst, Department of Economics.
  2. Muriel Pucci & Bruno Tinel, 2010. "Réductions d'impôts et dette publique : un lien à ne pas occulter," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 10085, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  3. Phillip Anthony O’Hara, 2011. "International Subprime Crisis and Recession: Emerging Macroprudential, Monetary, Fiscal and Global Governance," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(1), pages 1-17, March.
  4. Muriel Pucci & Bruno Tinel, 2010. "Réductions d'impôts et dette publique : un lien à ne pas occulter," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00543300, HAL.
  5. Soon Ryoo & Peter Skott, 2013. "Public debt and full employment in a stock-flow consistent model of a corporate economy," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 35(4), pages 511-528, July.
  6. Peter Skott & Soon Ryoo, 2012. "Public Debt and Functional Finance in an OLG Model with Imperfect Competition," UMASS Amherst Economics Working Papers, University of Massachusetts Amherst, Department of Economics 2012-10, University of Massachusetts Amherst, Department of Economics.
  7. Philip Arestis & Malcolm Sawyer, 2010. "What Monetary Policy after the Crisis?," Review of Political Economy, Taylor & Francis Journals, Taylor & Francis Journals, vol. 22(4), pages 499-515.

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