Reassessing Discretionary Fiscal Policy
نویسنده
چکیده
n 1992, President Bush proposed legislation intended to speed up the recovery from the 1990-91 recession. Congress rejected this proposal for countercyclical fiscal policy stimulus. In early 1993 President Clinton proposed his own stimulus package, but Congress rejected this proposal too. Many reasons were given for deciding against these two discretionary fiscal policy proposals, but perhaps the most common one was the large federal budget deficit in the early 1990s. With the rapid disappearance of budget deficits in recent years, this reason to vote against a discretionary fiscal stimulus is unlikely to be mentioned in the next economic cycle. Discretionary countercyclical fiscal policy again appears to be a politically feasible option. But should America use it after so many years of disuse? Much has happened in macroeconomics since the 1960s and 1970s when discretionary countercyclical fiscal policy was last considered a serious option in the United States. First, monetary policy-making has changed substantially. Over the last two decades, the Federal Reserve's interest rate decisions have become more explicit, more systematic, and more reactive to changes in both illflation and output. The Fed has placed a greater emphasis on keeping inflation low. The experience with this new policy has been very favorable-inflation has been low since the early 1980s and the real economy has been more stable; the 1980s and 1990s saw two lengthy expansions separated by a relatively short and mild recession. In terms of the tradeoff between output variability and inflation
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The Lack of an Empirical Rationale for a Revival of Discretionary Fiscal Policy
A decade ago in a paper, “Reassessing Discretionary Fiscal Policy,” published in the Journal of Economic Perspectives, I concluded that “in the current context of the US economy, it seems best to let fiscal policy have its main countercyclical impact through the automatic stabilizers ... It would be appropriate in the current circumstances for discretionary fiscal policy to be saved explicitly ...
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