A service of the


Volume 53, May/June 2018, Number 3 · pp. 140-146


A New Paradigm for Fiscal Policy?

Xavier Ragot

Fiscal policy is about the role of the state in the economy. It can change the tax structure, amend public spending to increase growth and welfare, and reduce inefficient fluctuations or destabilising crises in the short term. The 2008 financial crisis in the US and the subsequent European sovereign debt crisis have changed views about fiscal policy’s ability to stabilise market economies. The debate about fiscal policy is mainly evolving along two lines. The first focuses on inequality dynamics and the role of capital taxes on the evolution of inequality, mostly in the US. This obviously draws from the work of Thomas Piketty and Emmanuel Saez. The second line of debate is about the use of public debt as a macroeconomic stabilisation tool. The sharp increase in public debt around the world to previously unknown levels has induced a new debate about a possible trade-off between the stabilisation and sustainability of public debt.


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