Fiscal Stabilisation Policy and Fiscal Institutions
World Economy & Finance Research Programme Working Paper No. 0007
24 Pages Posted: 1 Nov 2006
Date Written: March 2006
In this paper we analyse countercyclical fiscal policy within the context of a microfounded analysis of business cycle stabilisation. We show that tax and spending instruments can have a useful counter cyclical role, even after allowing for the distortionary nature of the instruments and the need for debt sustainability. A critical barrier to the use of fiscal instruments may be political economy concerns, and we survey recent suggestions involving alternative fiscal policy institutions.
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