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Theory of functional finance and the role of fiscal policy: A post-keynesian critique to the new consensus macroeconomics

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  • Gabriel Caldas Montes
  • Rômulo do Couto Alves

Abstract

This paper presents the critical approaches and elaborates the arguments that oppose those of the New Consensus Macroeconomics regarding the conduct of fiscal policy. Those criticisms and arguments are based in the Post-Keynesian thought and the theory of Functional Finance. The theory of Functional Finance is an extension of the Keynesian approach, particularly with regard to discussions on public finances. As supports the theory of Functional Finance, the objectives to be pursued by fiscal policy should suggest the improvement of social welfare as a whole, i.e., the performance of inflation, employment and output should be taken into account by policymakers. JEL Classification: E12; E62; H63.

Suggested Citation

  • Gabriel Caldas Montes & Rômulo do Couto Alves, 2012. "Theory of functional finance and the role of fiscal policy: A post-keynesian critique to the new consensus macroeconomics," Brazilian Journal of Political Economy, Center of Political Economy, vol. 32(4), pages 670-688.
    • Handle: RePEc:ekm:repojs:v:32:y:2012:i:4:p:670-688:id:376
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    More about this item

    Keywords

    fiscal policy; functional finance; post-Keynesian;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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