Measure to Measure: The Effect of Fiscal Policy on Growth and Stability

Vitor GasparBy Vitor Gaspar

Does fiscal policy respond systematically to economic activity? Can fiscal policy promote macroeconomic stability? Does greater stability support stronger growth? The answer is yes on all counts. This finding, while seemingly obvious, is now backed by numbers to match each question. The April 2015 Fiscal Monitor explores how.

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How to Bake a (Cr)edible Medium-term Fiscal Pie

By Olivier Blanchard and Carlo Cottarelli

(Version in عربي | 中文 | Español | Français | Русский )

How can governments have their cake and eat it too? How can fiscal policy provide sufficient support to economic activity, and reassure markets that fiscal solvency is not at risk? The poor state of fiscal accounts of most advanced countries calls for austere fiscal policies, before the confidence crisis that is now hitting a few small advanced economies spreads to the larger ones. But not right now: a frontloaded adjustment—that is a tightening that is not gradual but falls disproportionately early in the adjustment phase—could destabilize the recovery.

But can countries limit frontloading and still achieve credibility? Yes, but baking the right fiscal pie is likely to require a number of ingredients. While the exact recipe depends on country circumstances, here are our suggested ingredients. Continue reading


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