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Fiscal Policy Effectiveness: Lessons from the Great Recession

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  • Pavlina R. Tcherneva

Abstract

This paper reconsiders fiscal policy effectiveness in light of the recent economic crisis. It examines the fiscal policy approach advocated by the economics profession today and the specific policy actions undertaken by the Bush and Obama administrations. An examination of the labor market renders the contemporary aggregate demand–management approach wholly inadequate for achieving certain macroeconomic objectives, such as the stabilization of investment and investor expectations, the generation and maintenance of full employment, and the equitable distribution of incomes. The paper reconsiders the policy effectiveness of alternative fiscal policy approaches, and argues that a policy that directly targets the labor demand gap (as opposed to the output gap) is far more effective in stabilizing employment, incomes, investment, and balance sheets.

Suggested Citation

  • Pavlina R. Tcherneva, 2011. "Fiscal Policy Effectiveness: Lessons from the Great Recession," Economics Working Paper Archive wp_649, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_649
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    File URL: http://www.levyinstitute.org/pubs/wp_649.pdf
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    Cited by:

    1. Šehović Damir, 2015. "The Impact of the Great Recession on Monetary and Fiscal Policy in Developed Market Economies," Business Systems Research, De Gruyter Open, vol. 6(1), pages 56-71, March.

    More about this item

    Keywords

    The Great Recession; Fiscal Policy; Macroeconomic Stabilization; Employment;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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