ABSTRACT
A major problem of fiscal policy is finding a balance between the short-run stabilization goal and the long-run systemic stability goal. Economists’ debates about that balance have swung like a pendulum from a long-run focus to a short-run focus, back to a long-run focus and . . . In the early 2000s, the debate is at the bottom of a swing and economists’ views on fiscal policy are best described as chaotic. Among the majority of mainstream academic economists, short-run discretionary fiscal policy is in ill repute both theoretically and practically. The general view held by most mainstream academic macroeconomists is that short-run fiscal policy doesn’t work, or that if it works, it works at the wrong time. The once accepted Keynesian theories of how fiscal policy worked have given way to a variety of theoretical models that provide little guidance to policy makers. These developments in theory mean that economists have given up their voice on budgeting, allowing political interests, not economic reasoning, to guide a practical fiscal policy.
