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Reassessing Discretionary Fiscal Policy

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  • John B. Taylor

Abstract

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.

Suggested Citation

  • John B. Taylor, 2000. "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 21-36, Summer.
    • 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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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.14.3.21
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • N16 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Latin America; Caribbean

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