The future of fiscal policy

Vitor Gaspar, Sandra Lizarazo and Adrián Peralta-Alva

Chapter 14 in Fiscal Policy in a Turbulent Era, 2024, pp 210-224 from Edward Elgar Publishing

Abstract: This chapter concentrates on three themes that will influence the future of fiscal policy. The first section examines government debt, capital accumulation, and growth in a general equilibrium model, concluding that when government deficits absorb private savings and crowd out private sector assets, there may be substantial costs in terms of foregone output growth. The cost is present irrespective of the relation between the return on public debt and the growth rate of the economy (r-g). The second section analyzes the monetary and fiscal policy mix historically, emphasizing the interaction between policies, credibility, and policy space. The third section analyzes the expanded role of fiscal policy in recent years, where the government has taken on the role of a financier of last resort. The conclusion highlights two difficult questions regarding the future of fiscal policy: How can policy be designed to influence private sector behavior towards achieving policy objectives? And how can the design promote stable, inclusive, sustainable, and resilient growth over time?

Keywords: Economics and Finance; Politics and Public Policy (search for similar items in EconPapers)
Date: 2024
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