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Reorienting Fiscal Policy after the Great Recession

Levy Economics Institute, Working Papers Series

28 Pages Posted: 11 May 2012  

Pavlina R. Tcherneva

Bard College - The Levy Economics Institute

Date Written: May 10, 2012

Abstract

The paper evaluates the fiscal policy initiatives during the Great Recession in the United States. It argues that, although the nonconventional fiscal policies targeted at the financial sector dwarfed the conventional countercyclical stabilization efforts directed toward the real sector, the relatively disappointing impact on employment was a result of misdirected funding priorities combined with an exclusive and ill-advised focus on the output gap rather than on the employment gap. The paper argues further that conventional pump-priming policies are incapable of closing this employment gap. In order to tackle the formidable labor market challenges observed in the United States over the last few decades, policy could benefit from a fundamental reorientation away from trickle-down Keynesianism and toward what is termed here a “bottom-up approach” to fiscal policy. This approach also reconsiders the nature of countercyclical government stabilizers.

Keywords: Fiscal Policy, American Recovery and Reinvestment Act of 2009, Trickle-Down Keynesianism, Countercyclical Employment Policy

JEL Classification: E24, E25, E61, E62, E65, H1, H5, J2, J6, J48

Suggested Citation

Tcherneva, Pavlina R., Reorienting Fiscal Policy after the Great Recession (May 10, 2012). Levy Economics Institute, Working Papers Series. Available at SSRN: https://ssrn.com/abstract=2055802 or http://dx.doi.org/10.2139/ssrn.2055802

Pavlina R. Tcherneva (Contact Author)

Bard College - The Levy Economics Institute ( email )

Blithewood
Annandale-on-Hudson, NY 12504-5000
United States

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