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In Praise of Expansionary Fiscal Contraction
Author(s) -
Congdon Tim
Publication year - 2015
Publication title -
economic affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.24
H-Index - 18
eISSN - 1468-0270
pISSN - 0265-0665
DOI - 10.1111/ecaf.12110
Subject(s) - economics , fiscal policy , praise , orthodoxy , monetary economics , keynesian economics , deficit spending , contraction (grammar) , volatility (finance) , macroeconomics , finance , psychology , philosophy , theology , debt , psychotherapist , linguistics
Textbook orthodoxy maintains that increases in the cyclically adjusted budget balance (i.e. reductions in the deficit) withdraw demand from an economy. Those K eynesian economists who believe that fiscal policy is the most powerful single influence on changes in demand expect ‘fiscal contraction’ to be accompanied by below‐trend growth or even declines in output. This article, a response to M artin W olf's 2013 Wincott Memorial Lecture, considers this K eynesian view. Using a database prepared by the International Monetary Fund, it shows that since the 1980s ‘expansionary fiscal contractions’ have been the norm and not the exception in the USA and the UK . K eynesian support for fiscal activism is unsupported by a large body of recent evidence.