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Fiscal Policy: Why Aggregate Demand Management Fails and What to Do about It


  • Pavlina R. Tcherneva


This paper argues for a fundamental reorientation of fiscal policy, from the current aggregate demand management model to a model that explicitly and directly targets the unemployed. Even though aggregate demand management has several important benefits in stabilizing an unstable economy, it also has a number of serious drawbacks that merit its reconsideration. The paper identifies the shortcomings that can be observed during both recessions and economic recoveries, and builds the case for a targeted demand-management approach that can deliver economic stabilization through full employment and better income distribution. This approach is consistent with Keynes's original policy recommendations, largely neglected or forgotten by economists across the theoretical spectrum, and offers a reinterpretation of his proposal for the modern context that draws on the work of Hyman Minsky.

Suggested Citation

  • Pavlina R. Tcherneva, 2011. "Fiscal Policy: Why Aggregate Demand Management Fails and What to Do about It," Economics Working Paper Archive wp_650, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_650

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    References listed on IDEAS

    1. Stephanie Bell & L. Randall Wray, "undated". "The War on Poverty After 40 Years: A Minskyan Assessment," Economics Public Policy Brief Archive ppb_78, Levy Economics Institute.
    2. Lesley J. Turner & Sheldon Danziger & Kristin S. Seefeldt, 2006. "Failing the Transition from Welfare to Work: Women Chronically Disconnected from Employment and Cash Welfare," Social Science Quarterly, Southwestern Social Science Association, vol. 87(2), pages 227-249.
    3. Pavlina R. Tcherneva, 2012. "Permanent On-The-Spot Job Creation—The Missing Keynes Plan for Full Employment and Economic Transformation," Review of Social Economy, Taylor & Francis Journals, vol. 70(1), pages 57-80, September.
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    More about this item


    Labor Demand Targeting; Aggregate Demand Management; Full Employment; Income Inequality; Poverty;

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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