Perspectives on Fiscal Policy

Joanna Siwińska-Gorzelak (University of Warsaw, Poland) Bettina Bökemeier (Bielefeld University, Germany)

Motivation

In the aftermath of the global financial crisis, a new debate emerged among academics and policymakers about the role and effectiveness of fiscal policy. On the one hand, high levels of existing debt – particularly in advanced economies – and the sharp increase in public expenditures due to ageing populations raise concerns about fiscal sustainability. On the other hand, the macroeconomic environment has changed, and this potentially creates a new role for fiscal policy (Ubide, 2016).

Until the global financial crisis, conventional wisdom assumed that monetary policy should be used as a stabilization policy and that fiscal policy was largely ineffective. However, very low interest rates limited the flexibility of monetary policy, rendering active fiscal policy a viable alternative for supporting economic growth. With low interest rates, effective growth-enhancing fiscal stimulus may even reduce the debt-to-GDP ratio, since changes in debt ratio depend on the difference between interest rates and growth rates (Furman, 2016). Empirical studies show that fiscal stimulus, in the form of government investment, can effectively increase long-term growth and reduce the debt-to-GDP ratio (Gaspar, Obstfeld & Sahay, 2016).

Given the changing macroeconomic environment and shifting view of the role of fiscal policy, there is a large scope for studies exploring the effects and constraints of fiscal policy. We invite you to submit articles that focus on the following research questions:

• Can fiscal policy effectively promote long-term growth?
• What is the size of fiscal multipliers?
• How can demographic changes affect long-term fiscal sustainability?
• What are the perspectives on the role of fiscal councils?
• What are the determinants of sovereign bond yield spreads?

We especially welcome papers analysing the above-mentioned topics in Central and Eastern European countries.

 

References

Ubide, A. (2016). The Case for an Active Fiscal Policy (VoxEU. org. Center for Economic and Policy Research). Retrieved from http://voxeu.org/article/case-active-fiscal-policy

Furman, J. (2016). The New View of fiscal policy and its application (VoxEU. org. Center for Economic and Policy Research). Retrieved from https://voxeu.org/article/new-view-fiscal-policy-and-its-application

Gaspar, V., Obstfeld, M. & Sahay, R. (2016). Macroeconomic Management When Policy Space is Constrained: A Comprehensive, Consistent and Coordinated Approach to Economic Policy (IMF Staff Discussion Note). Retrieved from https://www.imf.org/external/pubs/ft/sdn/2016/sdn1609.pdf