How to make discretionary fiscal policy countercyclical

• Autor(es): Leão, Pedro
• Data: 2012
• Identificador Persistente: http://hdl.handle.net/10400.5/3786
• Origem: Repositório da UTL
• Assunto(s): Stabilization; Discretionary fiscal policy; Business cycle
• Tipo de Documento: Outro
• Idioma: Inglês

Descrição

In most countries, discretionary fiscal policy has often been pro-cyclical: instead of dampening the business cycle, actual discretionary policy has mostly magnified it. This paper proposes a mechanism that allows discretionary fiscal policy to be counter-cyclical. This involves the creation of a Budget Agency which carries out expenditures that, in addition to increasing its debt, also raise its saleable assets - and, therefore, do not reduce the net value of its balance-sheet. One example is the construction, during a downswing, of housing and office buildings that will be sold in the subsequent upswing. Besides real estate investment, the Budget Agency may also undertake “balance-sheet neutral” expenditures in two other sectors responsible for the bulk of business cycle fluctuations: business investment and durable consumption.