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Fiscal policy: a strong macroeconomic role

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  • Philip Arestis

    (University of Cambridge)

Abstract

Current macroeconomics, the ‘New Consensus Macroeconomics’, downgrades significantly the role of fiscal policy as a stabilisation instrument of macroeconomic policy. This paper argues that fiscal policy deserves to be properly upgraded. More recent theoretical and empirical developments on the fiscal policy front are closely examined. This examination reveals that these developments lead to the conclusion that fiscal policy is not as ineffective as argued by the ‘New Consensus Macroeconomics’ proponents. On the contrary, it has a strong macroeconomic role. It is also the case that, in view of the ‘Great Recession’, financial stability has been shown to be very important in economic policy but had been ignored prior to it. The paper argues strongly that fiscal policy is actually a strong macroeconomic stabilisation instrument, especially so when it is coordinated not only with monetary policy but also and closely with financial stability policies – with such coordination-embracing income distribution. Fiscal policy should thereby be restored to its proper upgraded role in terms of economic policy. It is, therefore, high time economists and economic policymakers turned their attention more closely and seriously to this aspect and restored fiscal policy to its strong macroeconomic role.

Suggested Citation

  • Philip Arestis, 2012. "Fiscal policy: a strong macroeconomic role," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(0), pages 93-108.
  • Handle: RePEc:elg:rokejn:v:0:y:2012:i:1:p93-108
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    References listed on IDEAS

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    Cited by:

    1. repec:voj:journl:v:63:y:2016:i:1:p:1-24 is not listed on IDEAS
    2. Santiago Capraro & Carlo Panico & Ignacio Perrotini & Francesco Purificato, 2012. "Austerità o politiche coordinate ed espansive? Le difficili scelte delle autorità europee," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2012(108), pages 81-112.
    3. Jesús Ferreiro & Carmen Gómez & Felipe Serrano, 2013. "Mistakes in the Fiscal Policy in Spain before the Crisis," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(5), pages 577-592, September.
    4. David Dequech, 2016. "Some Institutions (Social Norms And Conventions) Of Contemporary Mainstream Economics, Macroeconomics, And Financial Economics," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 006, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    5. Astarita, Caterina & Purificato, Francesco, 2013. "TARGET2 imbalances and the need for a lender of last resort," MPRA Paper 51124, University Library of Munich, Germany.
    6. Şen, Hüseyin & Kaya, Ayşe, 2017. "How large are fiscal multipliers in Turkey?," EconStor Preprints 162763, ZBW - German National Library of Economics.
    7. Michal Jurek & Pawel Marszalek, 2015. "Policy alternatives for the relationship between ECB monetary and financial policies and new member states," Working papers wpaper112, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    8. Philip Arestis & Elias Karakitsos, 2014. "How Might the U.S. "Quantitative Easing" Develop?," Challenge, Taylor & Francis Journals, vol. 57(1), pages 5-18.

    More about this item

    Keywords

    fiscal policy; coordination of fiscal and monetary/financial policies;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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