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The Role of Fiscal Policy in the Eighties*
Author(s) -
NEVILE J. W.
Publication year - 1983
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1983.tb00576.x
Subject(s) - devaluation , economics , fiscal policy , constraint (computer aided design) , monetary economics , keynesian economics , monetary policy , macroeconomics , budget constraint , exchange rate , microeconomics , mechanical engineering , engineering
After surveying objections to using expansionary fiscal policy to raise output and employment. this article concludes that budget deficits do not necessarily lead to high interest rates and that crowding out is only moderate. even with non‐accommodating monetary policy. The major constraint on the effectiveness of expansionary fiscal policy is the need to avoid devaluation. If real wages are rigid downwards. devaluation will lead to increases in inflationary pressure rather than increases in output. Because of this. and because of inflationary pressure from short‐run Phillips curve effects. expansionary fiscal policy must be complemented by a prices and incomes policy.