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The future of fiscal policy

In: Fiscal Policy in a Turbulent Era

Author

Listed:
  • Vitor Gaspar
  • Sandra Lizarazo
  • Adrián Peralta-Alva

Abstract

This chapter concentrates on three themes that will influence the future of fiscal policy. The first section examines government debt, capital accumulation, and growth in a general equilibrium model, concluding that when government deficits absorb private savings and crowd out private sector assets, there may be substantial costs in terms of foregone output growth. The cost is present irrespective of the relation between the return on public debt and the growth rate of the economy (r-g). The second section analyzes the monetary and fiscal policy mix historically, emphasizing the interaction between policies, credibility, and policy space. The third section analyzes the expanded role of fiscal policy in recent years, where the government has taken on the role of a financier of last resort. The conclusion highlights two difficult questions regarding the future of fiscal policy: How can policy be designed to influence private sector behavior towards achieving policy objectives? And how can the design promote stable, inclusive, sustainable, and resilient growth over time?

Suggested Citation

  • Vitor Gaspar & Sandra Lizarazo & Adrián Peralta-Alva, 2024. "The future of fiscal policy," Chapters, in: Enrique Alberola (ed.), Fiscal Policy in a Turbulent Era, chapter 14, pages 210-224, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:21915_14
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    File URL: https://www.elgaronline.com/doi/10.4337/9781035300563.00026
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