Pedro Leão

How to make discretionary fiscal policy counter-cyclical: A note

6 Seiten · 2,10 EUR
(24. April 2013)

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Conclusion:

In most countries, discretionary fiscal policy has often been pro-cyclical: instead of checking the business cycle, actual discretionary policy has typically amplified it. This paper has proposed a mechanism that would not only prevent the pro-cyclical bias of discretionary fiscal policy, but also make it counter-cyclical. That mechanism involves the creation of an independent Budget Agency which undertakes expenditures that, in addition to augmenting its debt, also raise its saleable assets – and, therefore, do not reduce the net value of its balance-sheet. One example is the construction, during recessions, of housing and office buildings that will be sold in the subsequent expansions. Besides real estate investment, the Budget Agency can also carry out 'balance-sheet neutral' expenditures in the two other sectors responsible for the bulk of business cycle fluctuations: business investment and durable consumption.