Core Macroeconomics, Hilary Term 2013

Week 7: Fiscal policy

This week we continue our study of macroeconomic policy, turning our focus to fiscal policy. The Carlin and Soskice chapter will give you some useful technical tools for understanding the mechanics of deficits and debt, as well as an introduction to rule-based constraints on fiscal policy. The Romer chapter covers some of the same material, but goes much further in discussing political economy approaches to understanding how and why deficits emerge. A number of useful articles have appeared in Oxford Review of Economic Policy (OXREP) in recent years, a selection of which is listed below. I have also added a sprinkling of further recent contributions related to estimates of multipliers, constraints on policymakers, and lessons from the current crisis.

Readings

Carlin & Soskice Ch. 6

Romer (Advanced Macroeconomics) Ch. 11

OXREP
  Winter '05 issue, articles by Allsopp & Vines, Solow, and Krguman
  Winter '09 issue, article by Adam & Vines
  Spring '10 issue, articles by Wren-Lewis, Barrell & Weale
  Winter '11 issue, article by Helm

Auerbach, Gale, and Harris, "Activist Fiscal Policy", Journal of Economic Perspectives, vol. 24 (2010) no. 4.

Ramey, "Can Government Purchases Stimulate the Economy?", Journal of Economic Literature, vol. 49 (2011) no. 3.

Kirsanova, Leith, and Wren-Lewis, "Optimal Debt Policy, and an Institutional Proposal to help in its Implementation", European Economy Economic Papers no. 275, April 2007. Available as a chapter in this .

Assignment

Please write an essay answering the following question.

When is a discretionary fiscal expansion an appropriate policy response to a negative demand shock?