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  4. Summer 2000
  5. Reassessing Discretionary Fiscal Policy

Reassessing Discretionary Fiscal Policy

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Abstract

Recent changes in policy research and in policy-making call for a reassessment of countercyclical fiscal policy. Such a reassessment indicates that countercyclical fiscal policy should focus on automatic stabilizers rather than discretionary actions. Monetary policy has been reacting more systematically to output and inflation; long expansions in the 1980s and 1990s demonstrate policy effectiveness. It is unlikely that discretionary countercyclical fiscal policy could improve things, even with less uncertainty about fiscal impacts. A discretionary countercyclical fiscal policy could make monetary policy making more difficult. Discretionary fiscal policy should focus on long-run issues, such as tax reform and social security reform.

Citation

Taylor, John, B. 2000. "Reassessing Discretionary Fiscal Policy." Journal of Economic Perspectives, 14 (3): 21-36. DOI: 10.1257/jep.14.3.21

JEL Classification

  • E62 Fiscal Policy
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