Fiscal Activism in Booms, Busts, and Beyond
DOI:
https://doi.org/10.55444/2451.7321.2010.v48.n1.3872Keywords:
fiscal activism , booms and busts, consolidation, expenditure policiesAbstract
This paper discusses activist fiscal policies during good times, the crisis period and for the post-crisis period. The study argues, first, that fi scal policies were overly imprudent during the boom phase preceding the crisis. This was due to excessive expenditure growth and problems with measuring the output gap and fiscal stance. Second, during the crisis, too much emphasis was placed on the need for (activist) fiscal demand support despite demand excesses in the boom years in several countries. Fiscal activism focussed less (and less strongly than needed) on the balance sheet nature of the crisis and the significant misallocation of resources. Third, and given strong increases in public expenditure ratios in the crisis, timely fi scal exit strategies need to bring these down to sustainable levels so as to regain fiscal sustainability and to create an environment conducive to consolidation and growth.
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