ABSTRACT
This chapter turns to reforms in the design and execution of fiscal policy. The first part will suggest a new long-term role for fiscal policy, aimed at achieving a sustainable rate of national saving, thus helping to maintain financial and external balance in the economy as a whole. The second part will recommend a more active short-term role for fiscal policy in stabilising aggregate demand in the face of cycles and shocks, subject to not jeopardising the longer-term objectives, in particular the 1990s commitment to price stability. The final part will call for reunification of fiscal and monetary policymaking in a single process so far as possible, thereby repairing the separation prescribed by the 1990s consensus; and suggest practical ways of achieving this.
