Lessons on Fiscal Policy After the Global Financial Crisis

  • Malcolm Sawyer
Part of the International Papers in Political Economy book series (IPPE)


Immediately following the global financial crisis of 2007–2008, budget deficits rose from the operation of the automatic stabilisers and some mild discretionary actions to bolster demand in the face of the economic downturn. This was soon replaced by drives to reduce budget deficits and debt ratios even though unemployment continued to be high and output well below previous levels. The ‘debt scare’ behind fiscal consolidation is examined and found wanting on empirical and theoretical grounds. The nature and estimates of ‘the multiplier’ are examined and the consequences of the wide range of estimates considered. There has been a shift to the formulation of fiscal policy in terms of a balanced structural budget. This shift relies on discredited ideas, such as a well-defined and stable non-accelerating inflation rate of unemployment, and brings back the notion that savings and investment necessarily balance at a full employment equilibrium.


Fiscal policy Austerity Budget deficit Public debt Structural budgets Potential output 

JEL Classification



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Copyright information

© The Author(s) 2017

Authors and Affiliations

  • Malcolm Sawyer
    • 1
  1. 1.Leeds University Business SchoolUniversity of LeedsLeedsUK

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