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The Debate on the Crisis: Recent Reappraisals of the Concept of Functional Finance

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  • Giuseppe Mastromatteo

    (DISCE, Università Cattolica)

Abstract

This paper seeks to map out the possible paths of effective management of public action – including the possibility of deficit-financed action – designed, firstly, to short-term problems, with an immediate impact against economic depression, and secondly, to the medium-long-term perspective, aiming to assure that the extent and role of policies enacted is sustainable over time. This analytical approach underscores the theoretical validity of an active role of fiscal policy in helping to overcome severe recessions, provided that this policy is underpinned by appropriate institutional rules and a judicious application of the method of functional finance. This approach implies that the economic evaluation of deficit financed projects and careful selection of meritorious projects should be oriented towards goals of collective interest. Also, such projects should always pursue the goal of increasing the productivity of the economic system, with a view to achieving sustainable growth and, over time, allowing the debt to be suitably refinanced, managed and reduced by means of budget surpluses obtained during economic upswings.

Suggested Citation

  • Giuseppe Mastromatteo, 2011. "The Debate on the Crisis: Recent Reappraisals of the Concept of Functional Finance," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0105, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    • Handle: RePEc:ctc:serie3:ief0105
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    Cited by:

    1. Faruk Ülgen, 2012. "Financial instability and functional finance : a Lerner-Minsky perspective," Post-Print halshs-00843754, HAL.

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    More about this item

    Keywords

    crises; policies; functional finance; growth and sustainability of the public finance;
    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
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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