Fiscal Policy: A Potent Instrument
Abstract
There has undoubtedly been a major shift within macroeconomic policy over the past two decades, from the pre-eminence of fiscal policy to that of monetary policy. The latter has gained considerably in importance as an instrument of macroeconomic policy, whereas the former is rarely mentioned in policy discussions anymore, except in the context of limiting its use. We argue in this short paper that fiscal policy remains a powerful instrument for regulating the level of aggregate demand.