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Progress and ConfusionThe State of Macroeconomic Policy$
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Olivier Blanchard, Raghuram G. Rajan, Kenneth S. Rogoff, and Lawrence H. Summers

Print publication date: 2016

Print ISBN-13: 9780262034623

Published to MIT Press Scholarship Online: January 2017

DOI: 10.7551/mitpress/9780262034623.001.0001

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Fiscal Policy for the Twenty-First Century: Testing the Limits of the Tax State?

Fiscal Policy for the Twenty-First Century: Testing the Limits of the Tax State?

Chapter:
(p.165) 17 Fiscal Policy for the Twenty-First Century: Testing the Limits of the Tax State?
Source:
Progress and Confusion
Author(s):

Vitor Gaspar

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262034623.003.0017

This chapter focuses on two aspects of fiscal policy: managing public finance risks and the role of automatic fiscal stabilization. One lesson from the crisis is that risks to the fiscal outlook are highly correlated, asymmetric, and nonlinear. The chapter calls for greater efforts to measure, prevent, and minimize these risks. The chapter also emphasizes the importance of fiscal stabilization to reduce macroeconomic volatility, and introduces the fiscal stabilization coefficient (FISCO), which is a measure of how countercyclical is fiscal policy. The chapter outlines various measures that can make fiscal policy more stabilizing, for example automatic tax deductions during recessions.

Keywords:   fiscal policy, public finance risks, automatic stabilization, FISCO

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