The Limits to Fiscal Stimulus

Willem Buiter

No 7607, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The paper considers the case for an internationally coordinated further fiscal stimulus during the second half of 2009. Although this makes some of the analysis period-specific, most of the issues and principles considered are timeless. For a fiscal stimulus to be both effective there must be idle resources due to a failure of effective demand. For it to be desirable, there must be no alternative policy instruments (including monetary policy) for boosting demand. There must be no complete financial crowding out and no complete direct crowding out, through Ricardian equivalence/debt neutrality, through Minsky equivalence or through a high degree of substitutability between private and public exhaustive expenditure in private preferences or production possibilities. Finally, for international coordination to be desirable, there must be cross-border externalities from national fiscal stimuli. The paper considers each of these conditions in turn.

Keywords: Crowding out; Debt sustainability; Fiscal policy; Minsky neutrality; Ricardian equivalence (search for similar items in EconPapers)
JEL-codes: E4 E5 E6 F3 H3 H5 H6 (search for similar items in EconPapers)
Date: 2009-12
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Journal Article: The limits to fiscal stimulus (2010)
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