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Reorienting fiscal policy: a bottom-up Approach

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  • Pavlina Tcherneva

Abstract

The present article offers a fundamental critique of fiscal policy as it is understood in theory and exercised in practice. Two specific demand-side stabilization methods are examined here: conventional pump priming and the new designation of fiscal policy effectiveness found in the new consensus literature. A theoretical critique of their respective transmission mechanisms reveals that they operate in a trickle-down fashion that not only fails to secure and maintain full employment, but itself contributes to the increasing postwar labor market precariousness and the erosion of income equality. The two conventional demand-side measures are then contrasted with the proposed alternative—a bottom-up approach to fiscal policy based on a reinterpretation of Keynes's original policy prescriptions for full employment. The article offers theoretical, methodological, and policy rationale for government intervention that includes specific direct employment and investment initiatives, which are inherently different from contemporary hydraulic fine-tuning measures. It outlines the contours of the modern bottom-up approach and concludes with some of its advantages over conventional stabilization methods.

Suggested Citation

  • Pavlina Tcherneva, 2014. "Reorienting fiscal policy: a bottom-up Approach," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 37(1), pages 43-66.
  • Handle: RePEc:mes:postke:v:37:y:2014:i:1:p:43-66
    DOI: 10.2753/PKE0160-3477370105
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    File URL: http://hdl.handle.net/10.2753/PKE0160-3477370105
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    Cited by:

    1. Jan Kregel, 2014. "Liquidity Preference and the Entry and Exit to ZIRP and QE," Economics Policy Note Archive 14-5, Levy Economics Institute.
    2. Eckhard Hein, 2016. "Autonomous government expenditure growth, deficits, debt and distribution in a neo-Kaleckian growth model," Working Papers 2016-02, Universita' di Cassino, Dipartimento di Economia e Giurisprudenza.
    3. Pavlina R. Tcherneva, 2017. "Inequality Update: Who Gains When Income Grows?," Economics Policy Note Archive 17-1, Levy Economics Institute.
    4. Thomas I. Palley, 2015. "IThe US Economy: From Crisis to Stagnation," IMK Working Paper 154-2015, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. Greg Hannsgen & Tai Young-Taft, 2015. "Inside Money in a Kaldor-Kalecki-Steindl Fiscal Policy Model: The Unit of Account, Inflation, Leverage, and Financial Fragility," Economics Working Paper Archive wp_839, Levy Economics Institute.

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