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Fiscal Policy in Crisis: Rethinking Austerity

Author

Listed:
  • Dubravko Radošević

    (Institute of Economics, Zagreb and is Associate Professor at the University of Zagreb, Croatia)

Abstract

Many macroeconomists and politicans claim that fi scal austerity – getting the budget defi - cit down immediately – would be good for employment and growth. We think that fi scal stimulus is expansionary, and fi scal contraction is contractionary. There is a large and growing body of literature that shows that fi scal expansion can help economy to grow and reduce unemployment in near term; that certain types of fi scal stimulus are very effective and that fi scal contractions tend to lower output and employment in the short run. Fiscal austerity may be desirable for the long-term solvency and health of the economy. But it lowers growth and raises unemployment in the near term. A policy mix between new monetary strategy (nominal GDP targeting) and fi scal stimulus would be especially effective.

Suggested Citation

  • Dubravko Radošević, 2012. "Fiscal Policy in Crisis: Rethinking Austerity," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 15(2), pages 45-60, November.
  • Handle: RePEc:zag:zirebs:v:15:y:2012:i:2:p:45-60
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    More about this item

    Keywords

    austerity; stimulus; NGDP targeting; fiscal multiplier; full employment;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • P43 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Finance; Public Finance

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