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Fiscal ‘stimulus’: A loanable funds critique

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  • Anthony J. Makin

Abstract

This paper proposes an extended loanable-funds framework for examining the effects of fiscal stimulus on the budget balance, international borrowing, real interest rates, private saving, private investment and national income. It challenges the prevailing view that fiscal policy can be used effectively as an income ‘stimulus’ instrument, and proposes that discretionary fiscal measures that increase the budget deficit entail macroeconomic costs for significant external borrower economies, such as Australia, New Zealand and the United States.

Suggested Citation

  • Anthony J. Makin, 2009. "Fiscal ‘stimulus’: A loanable funds critique," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 16(4), pages 25-36.
    • Handle: RePEc:acb:agenda:v:16:y:2009:i:4:p:25-36
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    File URL: http://press-files.anu.edu.au/downloads/press/p88831/pdf/021.pdf
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    References listed on IDEAS

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    1. John B. Taylor, 2009. "The Lack Of An Empirical Rationale For A Revival Of Discretionary Fiscal Policy," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 10(02), pages 9-13, July.
    2. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    3. Alan J. Auerbach, 2002. "Is there a role for discretionary fiscal policy?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 109-150.
    4. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
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    Cited by:

    1. Anthony J. Makin, 2010. "How Should Macroeconomic Policy Respond to Foreign Financial Crises?," Economic Papers, The Economic Society of Australia, vol. 29(2), pages 99-108, June.
    2. Tony McDonald & Steven Morling, 2011. "The Australian economy and the global downturn, Part 1: Reasons for resilience," Economic Roundup, The Treasury, Australian Government, issue 2, pages 1-31, September.
    3. Tom Valentine, 2011. "An Accelerator Tied to a Brake: Fiscal Stimulus Under a Floating Exchange Rate," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 18(1), pages 35-40.
    4. Anthony J. Makin, 2015. "Expansionary Versus Contractionary Government Spending," Contemporary Economic Policy, Western Economic Association International, vol. 33(1), pages 56-65, January.
    5. Tony Makin, 2012. "The Fiscal Policy Response to the Global Financial Crisis: A Critique," Chapters, in: Mohamed Ariff & John H. Farrar & Ahmed M. Khalid (ed.), Regulatory Failure and the Global Financial Crisis, chapter 6, Edward Elgar Publishing.

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