Category Fiscal policy
Shouldn’t Taylor Rules include Fiscal Policy? The Fiscal exit strategy.
Most economists believe that for a given path of nominal interest rates chosen by the central bank, a looser fiscal policy (higher deficits, through lower taxes and/or higher spending) will cause higher Aggregate Demand, and therefore higher real output and/or inflation. Therefore, if a central bank is choosing a path for nominal interest rates in […]
“Fire-and-forget” fiscal policy
If you wanted to build a "fire-and-forget" fiscal policy, or where you at least minimised the chances you would ever again want to change any of the tax and spend rules, what would it look like? I was thinking about Stephen's question: if we had a good enough social safety net, wouldn't that create a […]
Is a need for fiscal stimulus a symptom of a poorly-designed social safety net?
In the debates on the need for a fiscal stimulus, both sides generally agreed that this particular policy instrument is one of the clumsiest available to policy makers. The dangers are well-known and well-documented: getting the timing wrong, getting the targets wrong, political interference, the risk of seeing a temporary spending program turn into a […]
Rethinking Canadian macroeconomic policy
Olivier Blanchard and a couple of colleagues at the IMF have circulated a paper with the title "Rethinking macroeconomic policy". Some of the ideas that are touched upon include Increasing inflation targets to 4% instead of the 2% goal that is more popular among central bankers. The idea is that when inflation and interest rates […]
On the history of the federal government’s structural balance
In the report it released last month, the Parliamentary Budget Office provided estimates and projections for the federal government's structural balance – that is, with the effects of the business cycle stripped out. This is always a tricky business, but their historical numbers resemble those produced by the Department of Finance (Figure 4-1), and the […]
The value of unfunded pension liabilities, and interest rates
The C.D. Howe Institute has released a study (pdf) on Federal government pensions, written by Alexandre Laurin and Bill Robson. The bottom line (and what hit the headlines) is that the value of the unfunded liabilities is $58 billion higher than recorded in the public accounts. So the national debt is $58 billion higher than […]
What is a “structural” deficit?
Macroeconomists like to divide an actual deficit into two components: a cyclical deficit and a structural deficit. It reflects their distinction between automatic stabilisers and discretionary fiscal policy. I don't think that distinction is as clear and useful as macroeconomists think it is. And in ordinary language a "structural" deficit is one that is hard […]
How Jim Flaherty can stop the structural deficit meme: Show us the numbers
From the Globe and Mail: Flaherty dismisses deficit 'speculation': “I see speculation. I don't see a lot of evidence. I see editorial comment without numbers, without analysis,” Mr. Flaherty said. Of course, that's exactly what we see coming from the Department of Finance. If Finance is so sure of its numbers, it should be publishing […]
Forecasting the Federal Deficit
I wanted to figure out what the federal budget deficit would look like when Canada eventually recovers from the recession. So I did a very crude back-of-the-envelope calculation. Then I looked at the Parliamentary Budget Office's own forecast (pdf). The PBO forecast is more pessimistic than mine. I'm still trying to figure out why.
Greece, the Eurozone, and Canada
I have been following the story about Greece. Like some other Eurozone countries, Greece has high deficit/GDP and debt/GDP ratios. Unlike Canada, but like Canadian provinces, Greece cannot print money. Eurozone countries are like Canadian provinces, as I argued in here back in January. But the Eurozone, unlike Canada, lacks a federal fiscal authority. The […]
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