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Discretionary Fiscal Policy and Budget Deficits: An ‘Orthodox’ Critique of Current Policy Debate

Published online by Cambridge University Press:  01 January 2023

Neil Hart
Neil Hart*
Affiliation:
School of Economics and Finance, University of Western Sydney
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Abstract

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A return to discretionary fiscal policy is required in the current economic crisis. Advocacy of deficit spending is consistent with mainstream economic models, whether those relying on traditional textbook analysis or those aligned with the New Neoclassical Synthesis. The notion that deficit budgets are necessarily profligate rests on an outdated theory of public finance that ignores endogenous money. It is the productive capacity of the economy and not the government's extent of taxing its citizens, or borrowing from them, that provides the limit to the use of fiscal policy levers.

Type
Symposium: The Global Financial Crisis
Information
The Economic and Labour Relations Review , Volume 19 , Issue 2 , July 2009 , pp. 39 - 58
Copyright
Copyright © The Author(s) 2009

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