Volume 17: Fiscal Policy and Macroeconomic Performance

Central Banking Series

Edited by Luis Felipe Céspedes; Jordi Galí
ISBN: 978-956-7421-37-4
ISBN: 978-956-7421-38-1

After two decades of relative neglect, fiscal policy is back at the center of the economics research agenda. The fiscal developments around the global financial crisis of 2007-2009 and its aftermath are undoubtedly a major factor behind that comeback.  The large fiscal stimulus packages adopted by many countries in the face of large adverse shocks have triggered an unusually heated debate among academics, policymakers and commentators alike.
In ten contributions written by economists with a recognized expertise in the field, this book shed light on the key questions at the aftermath of crises: How effective is fiscal policy at stimulating the economy? What is the best design for a fiscal stimulus package? Should it put most of its weight on government spending increases or on tax reductions? Are automatic stabilizers enough or is a discretionary stimulus needed? How does fiscal policy interact with monetary policy? Is there room for coordination? What are the possible consequences for the economy of a large rise in the debt/GDP ratio? And those of the fiscal consolidations aimed at stabilizing that ratio? Finally, should countries adopt explicit fiscal rules?


Can fiscal policy get us quickly out of Great Recessions like the one we just had? Should we aggressively use fiscal stimuli or be prudent? How and how quickly do we reduce large deficits? What are the long run costs of large debts? These are some of the fundamental questions that this volume discusses with breath of coverage and depth of analysis.  A first rate group of contributors deliver an essential reading for those interested in the fundamental theoretical and empirical issues in public finance.

Alberto Alesina, Harvard University

Traditionally, fiscal policy was a source of instability across most emerging markets economies, in particular in Latin America. However, in many emerging markets, during the global financial crisis the situation was different.  Fiscal and monetary policies played a key role in averting a much deeper crisis and provided the necessary impulse for a strong and durable recovery. This book contains first-rate research by leading economists on the macroeconomics of fiscal policy. It covers issues such as the impact of fiscal policies on the business cycle, exchange rates, and labor markets among many important areas. It also provides very valuable guidelines and lessons on building a more effective and welfare-enhancing fiscal policy framework. It is a collection of great papers and it will become important reading material for academics and policymakers.

José De Gregorio, Universidad de Chile

The question of how fiscal policy contributes to macroeconomic stability is among the most important ones in Economics. It is of particular relevance for emerging economies, where observed business cycles are about twice as volatile as those in developed countries. In spite of its importance, a definite answer to this and other related questions continues to be elusive. This excellent volume gathers cutting-edge contributions to the theory and empirics of fiscal policy by leading researchers in the field.  It is an essential reading for scholars and practitioners interested in macroeconomic policy for emerging and developed countries.

Martín Uribe, Columbia University

Table of Contents

The following documents are in Acrobat format.


Titles  Authors
Fiscal Policy and Macroeconomic Performance: An Overview Luis Felipe Céspedes and Jordi Galí
Taxes and the Labor Market
Tommaso Monacelli, Roberto Perotti, and Antonella Trigari
Tightening Tensions: Fiscal Policy and Civil Unrest in South America, 1937–95
Joachim Voth
Real Exchange Rate Dynamics and Fiscal Policy from a Cross-Country Perspective
Rodrigo Caputo and Miguel Fuentes
Riding the Roller Coaster: Fiscal Policies of Nonrenewable Resource Exporters in Latin America and the Caribbean
Mauricio Villafuerte, Pablo López-Murphy, and Rolando Ossowski
Fiscal Multipliers and Policy Coordination
Gauti Eggertsson
Floats, Pegs and the Transmission of Fiscal Policy
Giancarlo Corsetti, Keith Kuester, and Gernot J. Müller
Non-Ricardian Aspects of Fiscal Policy in Chile
Luis Felipe Céspedes, Jorge Fornero, and Jordi Galí
A Solution to Fiscal Procyclicality: The Structural Budget Institutions Pioneered by Chile
Jeffrey Frankel
Chile’s Fiscal Rule as Social Insurance
Eduardo Engel, Christopher Neilson, and Rodrigo Valdés
Procyclicality of Fiscal Policy in Emerging Countries: The Cycle is the Trend
Michel Strawczynski and Joseph Zeira