How to make discretionary fiscal policy countercyclical
In most countries, discretionary fiscal policy has often been pro-cyclical: instead of dampening the business cycle, actual discretionary policy has mostly magnified it. This paper proposes a mechanism that allows discretionary fiscal policy to be counter-cyclical. This involves the creation of a Budget Agency which carries out expenditures that, in addition to increasing its debt, also raise its saleable assets - and, therefore, do not reduce the net value of its balance-sheet. One example is the construction, during a downswing, of housing and office buildings that will be sold in the subsequent upswing. Besides real estate investment, the Budget Agency may also undertake “balance-sheet neutral” expenditures in two other sectors responsible for the bulk of business cycle fluctuations: business investment and durable consumption.
|Date of creation:||Jan 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Department of Economics, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL|
Web page: https://aquila1.iseg.ulisboa.pt/aquila/departamentos/EC
References listed on IDEAS
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- Antonio Fatas & Ilian Mihov, 2009.
"The Euro and Fiscal Policy,"
NBER Working Papers
14722, National Bureau of Economic Research, Inc.
- Mark Hallerberg & Rolf Strauch, 2002. "On the Cyclicality of Public Finances in Europe," Empirica, Springer, vol. 29(3), pages 183-207, September.
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