The Debate on the Crisis: Recent Reappraisals of the Concept of Functional Finance

Giuseppe Mastromatteo

No ief0105, DISCE - Quaderni dell'Istituto di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: This paper seeks to map out the possible paths of effective management of public action – including the possibility of deficit-financed action – designed, firstly, to short-term problems, with an immediate impact against economic depression, and secondly, to the medium-long-term perspective, aiming to assure that the extent and role of policies enacted is sustainable over time. This analytical approach underscores the theoretical validity of an active role of fiscal policy in helping to overcome severe recessions, provided that this policy is underpinned by appropriate institutional rules and a judicious application of the method of functional finance. This approach implies that the economic evaluation of deficit financed projects and careful selection of meritorious projects should be oriented towards goals of collective interest. Also, such projects should always pursue the goal of increasing the productivity of the economic system, with a view to achieving sustainable growth and, over time, allowing the debt to be suitably refinanced, managed and reduced by means of budget surpluses obtained during economic upswings.

Keywords: crises; policies; functional finance; growth and sustainability of the public finance (search for similar items in EconPapers)
JEL-codes: B22 E62 E63 (search for similar items in EconPapers)
Pages: 24
Date: 2011-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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