Reorienting Fiscal Policy after the Great Recession
AbstractThe paper evaluates the fiscal policy initiatives during the Great Recession in the United States. It argues that, although the nonconventional fiscal policies targeted at the financial sector dwarfed the conventional countercyclical stabilization efforts directed toward the real sector, the relatively disappointing impact on employment was a result of misdirected funding priorities combined with an exclusive and ill-advised focus on the output gap rather than on the employment gap. The paper argues further that conventional pump-priming policies are incapable of closing this employment gap. In order to tackle the formidable labor market challenges observed in the United States over the last few decades, policy could benefit from a fundamental reorientation away from trickle-down Keynesianism and toward what is termed here a "bottom-up approach" to fiscal policy. This approach also reconsiders the nature of countercyclical government stabilizers.
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Bibliographic InfoPaper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_719.
Date of creation: May 2012
Date of revision:
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Web page: http://www.levyinstitute.org
Fiscal Policy; American Recovery and Reinvestment Act of 2009; Trickle-Down Keynesianism; Countercyclical Employment Policy;
Find related papers by JEL classification:
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
- H1 - Public Economics - - Structure and Scope of Government
- H5 - Public Economics - - National Government Expenditures and Related Policies
- J2 - Labor and Demographic Economics - - Demand and Supply of Labor
- J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
- J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-22 (All new papers)
- NEP-MAC-2012-05-22 (Macroeconomics)
- NEP-PKE-2012-05-22 (Post Keynesian Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mary Daly & Bart Hobijn & Aysegul Sahin & Robert Valletta, 2011. "A Rising Natural Rate of Unemployment: Transitory or Permanent?," Tinbergen Institute Discussion Papers 11-160/3, Tinbergen Institute.
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