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Lessons from Failure: Fiscal Policy, Indulgence and Ideology

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  • Simon Wren-Lewis

    ()
    (Economics Department and Merton College, University of Oxford)

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.

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Bibliographic Info

Article provided by National Institute of Economic and Social Research in its journal National Institute Economic Review.

Volume (Year): 217 (2011)
Issue (Month): 1 (July)
Pages: R31-R46

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Handle: RePEc:sae:niesru:v:217:y:2011:i:1:p:r31-r46

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Related research

Keywords: Countercyclical fiscal policy; government debt; deficit bias; balanced budget fiscal expansion;

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Cited by:
  1. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09j0h168m2j is not listed on IDEAS
  2. Cobham, David, 2012. "The past, present and future of central banking," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2012-50, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. Simon Wren-Lewis, 2011. "Fiscal Councils: The UK Office for Budget Responsibility," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 9(3), pages 50-54, October.
  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.

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