The Effectiveness of Fiscal Policy in Combating Economic Crisis. An Analysis Based on the Economic Literature

Marius Marinas

Theoretical and Applied Economics, 2010, vol. XVII(2010), issue 11(552), 63-78

Abstract: The objective of this research is to identify, in the economic literature, the main factors which constrain the transmission of the fiscal shocks to the real economy. The interest in finding the most efficient fiscal stimuli in recovery the economies passing through crisis period has got increased as soon as the expansionary monetary policy promoted by most of the central banks has not generated an increase of the confidence in the private economic agents and, as a consequence, an increase of consumption and of the private investments. Even though it represents the Keynesian solution for recovery the economies which have been affected by the crisis, the fiscal expansion promoted during the recession periods does not generate the same expected positive effects any more (increase of consumption, significant decrease of unemployment, increase of revenues in economy), as they are conditioned by the reaction of the private economic agents to the fiscal stimuli. For example, the decision to decrease taxation may not automatically generate the significant increase of consumption (a condition for spreading the multiplier effect in economy), under the terms of pessimism or of the difficulty to access loans. As a result, the fiscal multipliers tend to be rather proper, and their value decreases more during the deep economic recession periods.

Keywords: fiscal policy; fiscal multipliers; neo-Keynesian; automatic stabilizers. (search for similar items in EconPapers)
Date: 2010
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