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Discretionary Fiscal Policy and Budget Deficits: An ‘Orthodox’ Critique of Current Policy Debate

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  • Neil Hart

Abstract

A return to discretionary fiscal policy is required in the current economic crisis. Advocacy of deficit spending is consistent with mainstream economic models, whether those relying on traditional textbook analysis or those aligned with the New Neoclassical Synthesis. The notion that deficit budgets are necessarily profligate rests on an outdated theory of public finance that ignores endogenous money. It is the productive capacity of the economy and not the government's extent of taxing its citizens, or borrowing from them, that provides the limit to the use of fiscal policy levers.

Suggested Citation

  • Neil Hart, 2009. "Discretionary Fiscal Policy and Budget Deficits: An ‘Orthodox’ Critique of Current Policy Debate," The Economic and Labour Relations Review, , vol. 19(2), pages 39-58, July.
    • Handle: RePEc:sae:ecolab:v:19:y:2009:i:2:p:39-58
    DOI: 10.1177/103530460901900204
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    References listed on IDEAS

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    1. Barro, Robert J, 1989. "The Ricardian Approach to Budget Deficits," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 37-54, Spring.
    2. Malcolm Sawyer & Jérôme Creel, 2009. "Current Thinking on Fiscal Policy," Post-Print hal-03416379, HAL.
    3. Jesús Ferreiro & Giuseppe Fontana & Felipe Serrano (ed.), 2008. "Fiscal Policy in the European Union," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-22826-9, April.
    4. Mark Setterfield, 2007. "Is There a Stabilizing Role for Fiscal Policy in the New Consensus?," Review of Political Economy, Taylor & Francis Journals, vol. 19(3), pages 405-418.
    5. R. M. Goodwin, 1982. "Essays in Economic Dynamics," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-05504-3, April.
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    Cited by:

    1. Peter Kriesler, 2009. "The Current Financial Crisis: Causes and Policy," The Economic and Labour Relations Review, , vol. 19(2), pages 17-25, July.

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