Money, fiscal policy and stability: Is a fiscal deficit necessary?
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Abstract
The debate surrounding the role of money is useful in understanding the reaches of fiscal policy, and therefore to recuperate the role of the public deficit as a policy instrument. Under the supposition of exogenous money
that is neutral, facilitates exchanges and responds to the needs of the 'real economy', mainstream economics considers that the best policy tool is maintaining balanced budgets in order to avoid inflation and the crowding out of private investment. Post-Keynesian authors, whose starting point is endogenous money as a representation of a social structure, resulting from institutional arrangements that respond to the needs of the productive system, consider that the public deficit has the capacity to stabilize production, employment and profits. The provision of liquidity to businesses and households is therefore necessary during times of recession.
that is neutral, facilitates exchanges and responds to the needs of the 'real economy', mainstream economics considers that the best policy tool is maintaining balanced budgets in order to avoid inflation and the crowding out of private investment. Post-Keynesian authors, whose starting point is endogenous money as a representation of a social structure, resulting from institutional arrangements that respond to the needs of the productive system, consider that the public deficit has the capacity to stabilize production, employment and profits. The provision of liquidity to businesses and households is therefore necessary during times of recession.
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How to Cite
Mendoza Méndez, J. E. (2013). Money, fiscal policy and stability: Is a fiscal deficit necessary?. Ola Financiera, 6(15), 78–103. https://doi.org/10.22201/fe.18701442e.2013.15.40266
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