Deficits, Growth, and the Current Slowdown: What Role for Fiscal Policy?

Journal of Post-Keynesian Economics, Vol. 26, No. 3

9 Pages Posted: 13 Apr 2012

See all articles by Theodore Pelagidis

Theodore Pelagidis

University of Piraeus; Brookings Institution

Evangelia Desli

Aristotle University of Thessaloniki - School of Economics

Date Written: September 20, 2004

Abstract

The hesitation of many conventional-wisdom economists to rely more aggressively on fiscal policy measures in order to keep their public finances more or less balanced may have contributed to the persisting current slowdown. We discuss the potential of active fiscal policies in stimulating growth focusing on the European experience. Recent contributions in this journal emphasized the role of expansionary fiscal policies not only during recessionary conditions but rather as a standard feature of the macroeconomic policy stance arguing that budget deficits lead to higher business profits and, therefore, economic growth. We provide evidence pointing to a positive relationship between fiscal deficits and capital profitability. We conclude that the dogmatic aversion for budget deficits may be perilous.

Keywords: fiscal policy, deficits, capital profitability, Europe

JEL Classification: E600, E620

Suggested Citation

Pelagidis, Theodore and Desli, Evangelia, Deficits, Growth, and the Current Slowdown: What Role for Fiscal Policy? (September 20, 2004). Journal of Post-Keynesian Economics, Vol. 26, No. 3. Available at SSRN: https://ssrn.com/abstract=1931236

Theodore Pelagidis (Contact Author)

University of Piraeus ( email )

21 Lambraki street
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Piraeus, Attiki 18533
Greece
+3021 04142526 (Phone)
+3021 4142571 (Fax)

HOME PAGE: http://www.maritime-studies.gr/index.php?option=com_comprofiler&task=userProfile&user=95&Itemid=183

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

HOME PAGE: http://www.brookings.edu/experts/pelagidist

Evangelia Desli

Aristotle University of Thessaloniki - School of Economics ( email )

Thessaloniki, 54124
Greece

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