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Reassessing Discretionary Fiscal Policy

  • John B. Taylor

Recent changes in policy research and in policy-making call for a reassessment of countercyclical fiscal policy. Such a reassessment indicates that countercyclical fiscal policy should focus on automatic stabilizers rather than discretionary actions. Monetary policy has been reacting more systematically to output and inflation; long expansions in the 1980s and 1990s demonstrate policy effectiveness. It is unlikely that discretionary countercyclical fiscal policy could improve things, even with less uncertainty about fiscal impacts. A discretionary countercyclical fiscal policy could make monetary policy making more difficult. Discretionary fiscal policy should focus on long-run issues, such as tax reform and social security reform.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.14.3.21
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 14 (2000)
Issue (Month): 3 (Summer)
Pages: 21-36

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Handle: RePEc:aea:jecper:v:14:y:2000:i:3:p:21-36
Note: DOI: 10.1257/jep.14.3.21
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  1. David Reifschneider & John C. Williams, 1999. "Three lessons for monetary policy in a low inflation era," Finance and Economics Discussion Series 1999-44, Board of Governors of the Federal Reserve System (U.S.).
  2. Jeffrey Fuhrer & Brian Madigan, 1994. "Monetary policy when interest rates are bounded at zero," Working Papers 94-1, Federal Reserve Bank of Boston.
  3. David H. Romer, 2000. "Keynesian Macroeconomics without the LM Curve," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 149-169, Spring.
  4. William Poole, 1999. "Monetary policy rules?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 3-12.
  5. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
  6. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
  7. John B. Taylor, 2000. "Teaching Modern Macroeconomics at the Principles Level," American Economic Review, American Economic Association, vol. 90(2), pages 90-94, May.
  8. Jonas Fisher, 2000. "Assessing the Effects of Fiscal Shocks," Econometric Society World Congress 2000 Contributed Papers 1499, Econometric Society.
  9. Allan H. Meltzer, 1999. "Commentary : monetary policy at zero inflation," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 261-276.
  10. Francesco Giavazzi & Tullio Jappelli & Marco Pagano, 1999. "Searching for Non-Keynesian Effects of Fiscal Policy," CSEF Working Papers 16, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  11. John B. Taylor, 1995. "Monetary policy implications of greater fiscal discipline," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 151-170.
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