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Fiscal Policy after the Great Recession

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  • Alberto Alesina

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    Abstract

    The Great Recession has severely hit the economies of most of the countries. Given that, fiscal policies have gained back a central role in the debate as a tool to recover from this situation. This paper provides an overview about the main controversial issues related to the fiscal policy. In particular, we analyze the role and the different effects played by discretionary counter-cyclical policies – say, for instance, tax cuts or increased government spending. Disagreement on this topic follows from the fact that it is extremely difficult to isolate the exogenous effect of these policies on GDP. We review several ways in which economists have tried to deal with this problem of estimation. Finally, we discuss why spending-based adjustments are preferable and less likely to be costly than tax-based ones and why large fiscal consolidation accompanied by appropriate policies can be much less costly than what we think. Copyright International Atlantic Economic Society 2012

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    File URL: http://hdl.handle.net/10.1007/s11293-012-9337-z
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    Article provided by Springer & International Atlantic Economic Society in its journal Atlantic Economic Journal.

    Volume (Year): 40 (2012)
    Issue (Month): 4 (December)
    Pages: 429-435

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    Handle: RePEc:kap:atlecj:v:40:y:2012:i:4:p:429-435
    DOI: 10.1007/s11293-012-9337-z
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    Keywords: Fiscal policy; Fiscal multipliers; Reverse causation; Counter-cyclical policies;

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    1. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 1-50.
    2. Adi Brender & Allan Drazen, 2008. "How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Panel of Countries," American Economic Review, American Economic Association, vol. 98(5), pages 2203-2220, December.
    3. Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, vol. 100(3), pages 763-801, June.
    4. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1329-1368.
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    Cited by:

    1. Harashima, Taiji, 2017. "Should a Government Fiscally Intervene in a Recession and, If So, How?," MPRA Paper 78053, University Library of Munich, Germany.
    2. World Bank, 2013. "India Development Update, April 2013," World Bank Other Operational Studies 16542, The World Bank.
    3. Vladimir Filipovski & Taki Fiti & Borce Trenovski, 2016. "Efficiency of the Fiscal Policy and the Fiscal Multipliers – The Case of the Republic of Macedonia," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 3-23.
    4. Gonzalo Caballero, 2013. "Effects of Fiscal and Monetary Policy in the Great Recession," Economies, MDPI, Open Access Journal, vol. 1(2), pages 1-4, September.
    5. Şen, Hüseyin & Kaya, Ayşe, 2015. "Growth enhancing effect of discretionary fiscal policy shocks: Keynesian, Weak Keynesian or Non-Keynesian?," MPRA Paper 65976, University Library of Munich, Germany, revised 05 Aug 2015.

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