Policy Implications and Conclusions

The purpose of this final chapter is to provide an overview of the material discussed in the previous chapters with particular emphasis on the economic policy implications of the various consumption functions. In opposition to Keynes’ and Duesenberry’s approaches, the life-cycle and permanent-income hypotheses offered the first theoretical justifications against the key role of fiscal policy in economic stabilisation. The case for non-activist economic policy was strengthened with the modern versions of consumption function based on Euler’s equation. This chapter will start with a summary of the policy implications emerging from the consumption formulations found in Keynes, Duesenberry, and Keynesianism. In the same vein, it will proceed with mainstream theories based on rational forward-looking optimising agents. It will proceed with a discussion of the policy implications emerging from Old or standard Keynesianism, Post Keynesian, other heterodox streams of economic thought, and non-mainstream strands such as the new behavioural economics. The presence of ideological considerations in policy recommendations will also be briefly discussed. A general conclusion summarising the main arguments of this book will close the chapter.