The Role of Fiscal Policy in the Eighties*

Abstract

After surveying objections to using expansionary fiscal policy to raise output and employment. this article concludes that budget deficits do not necessarily lead to high interest rates and that crowding out is only moderate. even with non‐accommodating monetary policy. The major constraint on the effectiveness of expansionary fiscal policy is the need to avoid devaluation. If real wages are rigid downwards. devaluation will lead to increases in inflationary pressure rather than increases in output. Because of this. and because of inflationary pressure from short‐run Phillips curve effects. expansionary fiscal policy must be complemented by a prices and incomes policy.

Faith, works and talents entwined: Driving forces behind John Nevile’s contributions

“… 3. Books and articles on fiscal policy listed in his curriculum vitae (CV) easily outnumber entries under any other heading. They include Nevile (1970, 1975, 1983, 1999, 2000, 2003) and Nevile and Kriesler (2012). …”