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The Role of Fiscal Policy

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  • Pavlina Tcherneva

Abstract

The article evaluates the fiscal policy initiatives during the Great Recession in the United States. It argues that, although the nonconventional fiscal policies targeted to the financial sector dwarfed conventional countercyclical stabilization efforts directed to the real sector, the relatively disappointing impact on employment was due not only to misdirected funding priorities but to an exclusive and ill-advised focus on the output gap rather than on the employment gap. The paper argues further that conventional pump priming policies are incapable of closing this employment gap. To tackle the formidable labor market challenges observed in the United States over the past few decades, policy can benefit from a fundamental reorientation away from trickle-down Keynesianism and toward what is termed here "a bottom-up approach" to fiscal policy. This approach also reconsiders the nature of countercyclical government stabilizers.

Suggested Citation

  • Pavlina Tcherneva, 2012. "The Role of Fiscal Policy," International Journal of Political Economy, Taylor & Francis Journals, vol. 41(2), pages 5-25.
  • Handle: RePEc:mes:ijpoec:v:41:y:2012:i:2:p:5-25
    DOI: 10.2753/IJP0891-1916410201
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    File URL: http://hdl.handle.net/10.2753/IJP0891-1916410201
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    Cited by:

    1. Tcherneva Pavlina R., 2012. "The Job Guarantee: Delivering the Benefits That Basic Income Only Promises – A Response to Guy Standing," Basic Income Studies, De Gruyter, vol. 7(2), pages 66-87, January.
    2. Pavlina R. Tcherneva, 2013. "Reorienting Fiscal Policy: A Critical Assessment of Fiscal Fine-Tuning," Economics Working Paper Archive wp_772, Levy Economics Institute.

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