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Contemporary Fiscal Policy Under The Incidence Of The New Paradigm Of Economics, Theoretical-Methodological Pluralism

Author

Listed:
  • Niţă Dobrotă

    (Academy of Economic Studies, Bucharest)

  • Cornel Ionescu

    (Spiru Haret University, Bucharest)

Abstract

Throughout centuries, economic schools and streams of thinking have dealt with economic problems, the problem of fiscality, of budget expenses and budget deficit in various individualist manners. In the last few decades, these issues have become so complex and dynamic, that none of the existing streams alone is capable of covering them. From a limited approach in point of space and time, the analysis of fiscal policy and especially the analysis of the state budget deficit may be reduced to studying the benefic and/or malefic interdependencies between Romania's fiscal policy and the dynamics of its national economy. In order to perform this operation, at present, it is necessary to thoroughly delimit the specific concepts, and at the same time, to specify the view and adequate tools (to the historical stage) that highlight the interdependencies between the reflected processes. Interdependencies concern both the senses of evolution and those expressing the qualitative sides of the respective processes. We will further study and analyze all these multiple interdependencies of growth, development and modernization of economy on the one hand, and fiscal policy as well as budget deficit on the other, in the spirit of theoretical pluralism, or, in other words, of a scientific theory. "We live in a period in which the specialists in macroeconomics issue new hypotheses in connection with the mechanisms governing economy – E. Phelps observedand try to find a new paradigm. Pluralism is the best methodological solution, its periodical manifestations being impossible to avoid anyway." Anticipating, we specify that in case of fiscal policy, the pluralist approach refers to a certain joining of principles and rules that are at the basis of aggregate demand and aggregate supply. At present, the supporters of the supply theory are in an obvious offensive position. They define their conception by the requirement of "supply oriented tax reduction". More concretely, the respective conception is outlined by three exigencies: (a) Fiscal reforms should contribute to increasing the stimuli by reducing taxes on the last currency unit of income, and by reducing marginal taxes, respectively. (b) Taxation fiscal system should be less progressive, which means reduction of the tax burdens imposed on the persons with high income. We are speaking about applying the theory of Laffer's Curve, which says that high and progressive taxes may lead to reduction of state fiscal incomes. (c) The respective system should be conceived in such a way as to stimulate productivity and supply, not to manipulate aggregate demand. It follows from above that pluralism implies a new relation between the theory of aggregate supply and demand when substantiating fiscal policy and not giving up the theory of Keynesian and Neo- Keynesian extraction.

Suggested Citation

  • Niţă Dobrotă & Cornel Ionescu, 2007. "Contemporary Fiscal Policy Under The Incidence Of The New Paradigm Of Economics, Theoretical-Methodological Pluralism," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 11(11(516)(s), pages 219-228, November.
  • Handle: RePEc:agr:journl:v:11(516)(supplement)(vol2):y:2007:i:11(516)(supplement)(vol2):p:219-228
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