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"Expansionary fiscal contractions": a standard Keynesian explanation

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  • Göran Hjelm

Abstract

In the past 10 to 15 years, it has been argued in the literature on "expansionary fiscal contraction" (EFC) that under certain circumstances, fiscal policy has non-Keynesian effects. We show that the real exchange rate depreciated substantially prior to fiscal contractions with a favorable macroeconomic outcome. The preceding real depreciations functioned like an expenditure-shifting policy, strengthening the current account substantially during periods of successful contraction. In short, there is a standard Keynesian explanation for the findings of the previous empirical studies on the EFC hypothesis.

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  • Göran Hjelm, 2006. ""Expansionary fiscal contractions": a standard Keynesian explanation," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 29(2), pages 327-358.
    • Handle: RePEc:mes:postke:v:29:y:2006:i:2:p:327-358
    DOI: 10.2753/PKE0160-3477290208
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    Cited by:

    1. Jesús Ferreiro & M. Teresa García-del-Valle & Carmen Gómez, 2013. "An Analysis of the Convergence of the Composition of Public Expenditures in European Union Countries," American Journal of Economics and Sociology, Wiley Blackwell, vol. 72(4), pages 799-825, October.

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