Category Fiscal policy
Don’t borrowing-constrained households spend more of a tax cut??
One of the standard arguments against the Ricardian Equivalence Proposition is that some households are borrowing-constrained. They want to borrow and spend against their future income, but can't find anyone to lend them money. So when the government gives them a tax cut, financed by higher future taxes, the government is effectively lending them the […]
Monetary and fiscal policy ought normally move together
We normally think of monetary and fiscal policy as alternative methods of stabilising fluctuations in aggregate demand. It is only in abnormal times, like the present, when central banks' interest rate instruments are at or near the zero lower bound, that we might want to use both monetary and fiscal policy together. Only if we […]
Is fiscal conservatism about deficits or debt?
I was on CPAC Sunday evening, on a roundtable with two other economists: David MacDonald (who coordinated the alternative budget for the Canadian Centre for Policy Alternatives); and Glen Hodgson (Chief Economist for the Conference Board). [You can watch it here – SG.] The topic was Canada's projected $50 billion federal deficit; should we be […]
Why share-of-GDP is the correct measure for the size of government
In this post, I made the point that as a share of GDP, program expenditures by the federal government are less than what John Diefenbaker saw, and my conclusion was that the whole "runaway spending" meme was just silly. On his blog, Andrew Coyne added his voice to this chorus. When I made the point […]
A $50 billion deficit is really a $25 billion deficit
If the government runs a deficit, it means you have to increase taxes or cut government spending sometime in the future, right? Well no, that's not exactly right.
“John Cochrane’s” argument for fiscal stimulus
I just finished reading John Cochrane's paper, where he applies the fiscal theory of the price level to the current crisis. (Thanks Adam P!). OK, I admit I didn't really read it thoroughly; I skimmed it. It's full of good insights, and also bad mistakes. The best thing to do with a paper like that […]
A “Why Fiscal Policy Won’t Work” Contest
I am opening a contest. Let's see who can come up with the most plausible (or least implausible) model in which fiscal policy would not work in present circumstances. This is not an entirely frivolous exercise. David Andolfatto (who runs another excellent Canadian economics blog) has made a number of posts recently questioning the empirical […]
Bad banks, and the effectiveness of fiscal and monetary policies
I'm going to take another crack at this topic. Do bad banks (and a bad financial system) reduce the effectiveness of fiscal and monetary policies in shifting the Aggregate Demand curve to the right? The answer matters, because if they do reduce the effectiveness of fiscal and monetary policy (a lot), then we need to […]
Banks, Aggregate Demand, and Aggregate Supply
What is the relation between banks, aggregate demand, and aggregate supply? Do bad banks shift the AD curve or the AS curve? Do bad banks make it harder for fiscal or monetary policy to shift the AD curve? Some economists argue that you need to fix the banks (and the financial system) to get an […]
Fiscal policy after the recession
Eventually, the recession will be over, and we will have to deal with the question of what should be done to recover from the recession-induced deficit. Ideally, the answer should be "Nothing": as the economy recovers, the deficit would go back to zero as tax revenues went back up and recession-induced expenditures went back down. […]
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