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Keynesian, Classical and New Keynesian Approaches to Fiscal Policy: Comparison and Critique

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  • Thomas I. Palley

Abstract

The short-run macroeconomic effectiveness of fiscal policy depends on the effect of policy on AD and the effect of AD on output. This paper examines how macroeconomic perspectives (Keynesian, Post Keynesian, monetarist, classical, new classical, and new Keynesian) describe the effect of AD on output, thereby making or denying space for fiscal policy to impact output. The neo-Ricardian hypothesis (NRH) concerns the effect of bond financed deficits on AD. The NRH turns on the microeconomic behavior of households and can therefore hold in principle in both classical and Keynesian models. Recent new Keynesian arguments about fiscal policy being effective at the zero lower bound represent another capital market imperfection critique of the NRH.

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  • Thomas I. Palley, 2012. "Keynesian, Classical and New Keynesian Approaches to Fiscal Policy: Comparison and Critique," IMK Working Paper 96-2012, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:wpaper:96-2012
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    Cited by:

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    2. Wei Jiang & Yadong Wang, 2023. "Asymmetric Effects of Human Health Capital on Economic Growth in China: An Empirical Investigation Based on the NARDL Model," Sustainability, MDPI, vol. 15(6), pages 1-16, March.
    3. Bendreff Desilus, 2020. "Fiscal Policy in Argentina, Brazil, and Mexico and the 2030 Agenda for Sustainable Development," Economics Working Paper Archive wp_960, Levy Economics Institute.

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    More about this item

    Keywords

    Fiscal policy; Keynesian; Post Keynesian; monetarist; classical; new Keynesian; neo-Ricardian hypothesis; zero lower bound;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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