A negative fiscal multiplier?
The so-called negative fiscal multiplier concept comes from the neo-classical free market economic philosophy and is found useful in arguing that fiscal stabilisation policy may produce results contrary to those expected under Keynesian analysis in which the (positive) fiscal multiplier has traditionally been accepted as the norm. As a result, 'fiscal consolidation' (FC hereafter), that is, the creation and maintenance of the classical balanced budget, ensures that fiscal policy cannot be used for stabilising the economy. Indeed, any attempt to do so will be harmful. This idea has been advanced and research into its possible existence during the last twenty years has produced some encouraging results. This paper examines this research in further detail.
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