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Some Lessons for Fiscal Policy from the Financial Crisis

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  • Philip Lane

    ()
    (Institute for International Integration Studies, Trinity College Dublin)

Abstract

The current crisis calls for a re-assessment of the optimal conduct of macroeconomic policies during non-crisis normal times. In particular, the risk and costs of crises can be mitigated by macroeconomic policies that lean against the wind in the face of cyclical, sectoral and external shocks. In this paper, I discuss the challenges involved in deploying fiscal policy in pursuit of a broad definition of macroeconomic stabilisation. The main policy conclusion is that pro-stabilisation fiscal policies are likely to be more effective if fiscal policy is determined under a formal fiscal framework that combines a set of fiscal rules and a substantive role for an independent fiscal policy council.

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Bibliographic Info

Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp334.

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Length: 31 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:iis:dispap:iiisdp334

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Related research

Keywords: fiscal council; fiscal rules; macroeconomic stabilisation;

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References

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  1. Felix Eschenbach & Ludger Schuknecht, 2004. "Budgetary risks from real estate and stock markets," Economic Policy, CEPR & CES & MSH, vol. 19(39), pages 313-346, 07.
  2. Agustín S. Bénétrix & Philip R. Lane, 2012. "Fiscal Cyclicality and EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp403, IIIS.
  3. Katrin Assenmacher-Wesche & Stefan Gerlach, 2010. "Monetary policy and financial imbalances: facts and fiction," Economic Policy, CEPR & CES & MSH, vol. 25, pages 437-482, 07.
  4. Nathalie Girouard & Robert W.R. Price, 2004. "Asset Price Cycles, “One-Off” Factors and Structural Budget Balances," OECD Economics Department Working Papers 391, OECD Publishing.
  5. Xavier Debrun & Manmohan S. Kumar, 2007. "The Discipline-Enhancing Role of Fiscal Institutions: Theory and Empirical Evidence," IMF Working Papers 07/171, International Monetary Fund.
  6. James Feyrer & Jay C. Shambaugh, 2009. "Global Savings and Global Investment: The Transmission of Identified Fiscal Shocks," NBER Working Papers 15113, National Bureau of Economic Research, Inc.
  7. Carlo Favero & Francesco Giavazzi, 2007. "Debt and the Effects of Fiscal Policy," NBER Working Papers 12822, National Bureau of Economic Research, Inc.
  8. Antonio Spilimbergo & Steven A. Symansky & Carlo Cottarelli & Olivier J. Blanchard, 2009. "Fiscal Policy for the Crisis," IMF Staff Position Notes 2008/01, International Monetary Fund.
    • Antonio Spilimbergo & Steve Symansky & Olivier Blanchard & Carlo Cottarelli, 2009. "Fiscal Policy For The Crisis," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 10(2), pages 26-32, 07.
  9. Diarmaid Addison-Smyth & Kieran McQuinn, 2010. "Quantifying Revenue Windfalls from the Irish Housing Market," The Economic and Social Review, Economic and Social Studies, vol. 41(2), pages 201-233.
  10. Alberto Alesina & Guido Tabellini, 2005. "Why is fiscal policy often procyclical?," Levine's Bibliography 784828000000000465, UCLA Department of Economics.
  11. Galstyan, Vahagn A. & Lane, Philip R., 2008. "The Composition of Government Spending and the Real Exchange Rate," CEPR Discussion Papers 6903, C.E.P.R. Discussion Papers.
  12. Morris, Richard & de Castro Fernández, Francisco & Jonk, Steven & Kremer, Jana & Linehan, Suzanne & Marino, Maria Rosaria & Schalck, Christophe & Tkacevs, Olegs, 2009. "Explaining government revenue windfalls and shortfalls: an analysis for selected EU countries," Working Paper Series 1114, European Central Bank.
  13. Agustín Bénétrix & Philip Lane, 2010. "Fiscal Shocks and The Sectoral Composition of Output," Open Economies Review, Springer, vol. 21(3), pages 335-350, July.
  14. Giancarlo Corsetti & Gernot J. Mueller, 2007. "Twin Deficits, Openness and the Business Cycle," Economics Working Papers ECO2007/20, European University Institute.
  15. Talvi, Ernesto & Vegh, Carlos A., 2005. "Tax base variability and procyclical fiscal policy in developing countries," Journal of Development Economics, Elsevier, vol. 78(1), pages 156-190, October.
  16. Woo, Jaejoon, 2003. "Economic, political, and institutional determinants of public deficits," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 387-426, March.
  17. Beetsma, Roel & Giuliodori, Massimo & Wierts, Peter, 2009. "Budgeting versus implementing fiscal policy in the EU," CEPR Discussion Papers 7285, C.E.P.R. Discussion Papers.
  18. Ffrench-Davis Ricardo, 2010. "Latin America: The Structural Fiscal Balance Policy in Chile: A Move Toward Counter-Cyclical Macroeconomics," Journal of Globalization and Development, De Gruyter, vol. 1(1), pages 1-16, January.
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Cited by:
  1. Ferré Carracedo, Montserrat, 2011. "The effects of uncertainty about countries' compliance with the Stability and Growth Pact," Working Papers 2072/169686, Universitat Rovira i Virgili, Department of Economics.

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