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Fiscal Responsibility: What Exactly Does It Mean?

Author

Listed:
  • Jan Kregel
Abstract
The use of government fiscal stimulus to support the economy in the recent economic crisis has brought increases in government deficits and increased government debt. This has produced an interest in sustainable government debt and the role of deficits in the economy. This paper argues in favor of a concept of "responsible" government policy, referring to positions held by Franklin and Marshall Professor Will Lyons. The idea is that government should be responsible to the needs and desires of its citizens, but that this should go beyond physical security and education, to economic security. Building on the fallacy of composition and misplaced concreteness, it suggests that in an integrated macro system an increased desire to save on the part of the private sector will be self-defeating unless the government acts in a responsible manner to support those desires. This can only be done by government dissaving via an expenditure deficit. The outstanding government debt simply represents the desires of the public to hold safe financial assets, and can only be unsustainable if the public’s desires change. The government should always be responsive to these desires, and adjust its expenditure policy.

Suggested Citation

  • Jan Kregel, 2010. "Fiscal Responsibility: What Exactly Does It Mean?," Economics Working Paper Archive wp_602, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_602
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    File URL: http://www.levyinstitute.org/pubs/wp_602.pdf
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    Citations

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    Cited by:

    1. Scott T. Fullwiler, 2016. "The Debt Ratio and Sustainable Macroeconomic Policy," World Economic Review, World Economics Association, vol. 2016(7), pages 12-42, July.
    2. Soon Ryoo & Peter Skott, 2013. "Public debt and full employment in a stock-flow consistent model of a corporate economy," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 35(4), pages 511-528.
    3. repec:ums:papers:2012-10 is not listed on IDEAS
    4. Richard E. Wagner, 2012. "Deficits, Debt, and Democracy," Books, Edward Elgar Publishing, number 14477.
    5. Skott Peter & Ryoo Soon, 2014. "Public debt in an OLG model with imperfect competition: long-run effects of austerity programs and changes in the growth rate," The B.E. Journal of Macroeconomics, De Gruyter, vol. 14(1), pages 533-552, January.
    6. Skott, Peter & Ryoo, Soon, 2015. "Functional finance and intergenerational distribution in a Keynesian OLG model," UMASS Amherst Economics Working Papers 2015-13, University of Massachusetts Amherst, Department of Economics.

    More about this item

    Keywords

    Deficit Spending; Sustainable Deficits; Responsible Fiscal Policy; Will Lyons;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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