engleski

Discussion on the limitations of keynesian-based fiscal policies

The majority of world economies have just recently experienced the economic downturn, which had its roots in financial crisis. Consequently, in order to stabilise the economy, governments have pushed their activities, in particular at fiscal policy area, towards more interventionist approaches. Besides, the pressures existed for reforms of regulatory framework of the economy, in particular to achieve better and more efficient regulation of markets, especially financial ones. In essence, this meant the departure from neoliberal policymaking towards more »collectivism« in policymaking, which is at centre of Keynesian based policymaking, concerned predominantly at correcting »unfair« market outcomes. In the context of business-government relations, this meant that governmental paternalism has once again been seen as the most viable system. However, although it may have seem plausible, under economic conditions of 2008 and 2009 in particular, to adopt more economic interventionism in order to correct market outcomes, governments have soon experienced the limitations of interventionist policies, in particular fiscal ones. Although it may have been perceived that Keynesian-based policymaking would prevail also in the mid-term, policies soon became more liberally oriented after the initial shock has terminated. Namely, in particular the issue of fiscal sustainability has been perceived as one of the most important obstacles for promoting extensive demand-side oriented fiscal policies. In this context, paper has three main purposes. First, paper discusses fiscal policymaking from historical perspective, in particular its theoretical foundations and practical implications, but also portrays historical cycles in prevailing concepts of fiscal policymaking. Second, paper presents an overview of fiscal policies that prevailed in developed (in particular European) countries when recent economic downturn emerged. Third, paper evaluates Keynesian-based fiscal policies of 2008-2010 economic downturns and presents the existing limitations for demand-side oriented policy-making in the present and future.

Economic downturn ; government interventionism ; Keynesian thinking ; fiscal policies ; role of government

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