ABSTRACT
In recent years, we have seen a shift in paradigm with respect to the efficacy of fiscal policy. Economists have become increasingly skeptical about whether short-run fiscal policy and Keynesian stabilization policy has any immediate stabilization effects. The traditional Keynesian macroeconomic policy was to undertake tax reductions and spending increases to cushion recessions. Cushioning recessions through automatic stabilizers is however still favored by most macroeconomists. Yet because of the uncertainty about the immediate effects of short-run fiscal policy, economists have become hesitant about fiscal policy – beyond its function as automatic stabilizer – as a means to stabilizing the business cycle.
