Reorienting Fiscal Policy after the Great Recession

Pavlina Tcherneva

Economics Working Paper Archive from Levy Economics Institute

Abstract: The paper evaluates the fiscal policy initiatives during the Great Recession in the United States. It argues that, although the nonconventional fiscal policies targeted at the financial sector dwarfed the conventional countercyclical stabilization efforts directed toward the real sector, the relatively disappointing impact on employment was a result of misdirected funding priorities combined with an exclusive and ill-advised focus on the output gap rather than on the employment gap. The paper argues further that conventional pump-priming policies are incapable of closing this employment gap. In order to tackle the formidable labor market challenges observed in the United States over the last few decades, policy could benefit from a fundamental reorientation away from trickle-down Keynesianism and toward what is termed here a "bottom-up approach" to fiscal policy. This approach also reconsiders the nature of countercyclical government stabilizers.

Keywords: Fiscal Policy; American Recovery and Reinvestment Act of 2009; Trickle-Down Keynesianism; Countercyclical Employment Policy (search for similar items in EconPapers)
JEL-codes: E24 E25 E61 E62 E65 H1 H5 J2 J48 J6 (search for similar items in EconPapers)
Date: 2012-05
New Economics Papers: this item is included in nep-mac and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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