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Lessons from Failure: Fiscal Policy, Indulgence and Ideology

Published online by Cambridge University Press:  26 March 2020

Simon Wren-Lewis
Simon Wren-Lewis*
Affiliation:
Economics Department and Merton College, University of Oxford
*
e-mail simon.wren-lewis@economics.ox.ac.uk
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Abstract

Macroeconomic theory clearly suggests that at the zero lower bound, fiscal contraction will reduce output and slow any recovery. Yet in 2010 the focus of fiscal policy in many countries switched from supporting activity to reducing debt, despite the fact that the recovery from recession often appeared weak. While high levels of public debt can explain this switch in some countries, it does not provide a satisfactory account in others. In addition, the possibility of using balanced budget fiscal expansion or tax switches that bring forward spending remain largely unexplored. This paper suggests that policy has been influenced by an opposition to countercyclical fiscal policy which has ideological roots.

Keywords

Countercyclical fiscal policygovernment debtdeficit biasbalanced budget fiscal expansionA14E62E63E65H63
Type
Research Articles
Information
National Institute Economic Review , Volume 217 , July 2011 , pp. R31 - R46
Copyright
Copyright © 2011 National Institute of Economic and Social Research

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Footnotes

∗

I am grateful to Charles Brendon, Paul Levine, Peter McAdam, Joe Pearlman, David Vines, and two anonymous referees for helpful conversations and comments, but responsibility for the views expressed here is entirely mine.

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