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Economic Policies since the Global Financial Crisis pp 41–84Cite as

Palgrave Macmillan

Lessons on Fiscal Policy After the Global Financial Crisis

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Part of the book series: International Papers in Political Economy ((IPPE))

Abstract

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.

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Notes

  1. 1.

    Figures in this paragraph have been calculated from OECD Economic Outlook 2016/2 Statistical Annexe.

  2. 2.

    There were some special factors in a number of countries, which may have raised tax revenues in 2006/07 thereby reducing the recorded budget deficit s, including property market booms.

  3. 3.

    For discussion of euro area policies see, for example, Arestis et al. (2013), Sawyer (2017).

  4. 4.

    See Sawyer (2012, 2013) for detailed discussion of UK fiscal policy after the fiscal crisis.

  5. 5.

    Tom Coburn was Republican Senator for Oklahoma over the period 2005–2015.

  6. 6.

    See Arestis (2015) for further discussions.

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Authors and Affiliations

  1. Leeds University Business School, University of Leeds, Leeds, LS2 9JT, UK

    Malcolm Sawyer

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  1. Malcolm Sawyer
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Editors and Affiliations

  1. University of Cambridge, Cambridge, United Kingdom

    Philip Arestis

  2. University of Leeds, Leeds, United Kingdom

    Malcolm Sawyer

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Sawyer, M. (2017). Lessons on Fiscal Policy After the Global Financial Crisis. In: Arestis, P., Sawyer, M. (eds) Economic Policies since the Global Financial Crisis. International Papers in Political Economy. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-60459-6_2

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  • DOI: https://doi.org/10.1007/978-3-319-60459-6_2

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