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Title:The return of fiscal policy: can the new developments in the new economic consensus be reconciled with the Post-Keynesian view? PDF Logo
Authors:Tcherneva, Pavlina R.
Issue Date:2008
Series/Report no.:Working papers // The Levy Economics Institute 539
Abstract:The monetarist counterrevolution and the stagflation period of the 1970s were among the theoretical and practical developments that led to the rejection of fiscal policy as a useful tool for macroeconomic stabilization and full employment determination. Recent mainstream contributions, however, have begun to reassess fiscal policy and have called for its restitution in certain cases. The goal of this paper is to delimit the role of and place for fiscal policy in the New Economic Consensus (NEC) and to compare it to that of Post-Keynesian theory, the latter arguably the most faithful approach to the original Keynesian message. The paper proposes that, while a consensus may exist on many macroeconomic issues within the mainstream, fiscal policy is not one of them. The designation of fiscal policy within the NEC is explored and contrasted with the Post-Keynesian calls for fiscal policy via Abba Lerner’s functional financeĀ” approach. The paper distinguishes between two approaches to functional financeone that aims to boost aggregate demand and close the GDP gap, and one that secures full employment via direct job creation a link that the Post-Keynesian approach promises to restore.
Subjects:Fiscal policy
new economic consensus
fiscal theory of the price level
functional finance
full employment
JEL:E62
E12
E24
E31
Document Type:Working Paper
Appears in Collections:Working Papers, Levy Economics Institute of Bard College

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