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With a Permanently Pro-cyclical Fiscal Policy We Could Lose Democracy and Monetary Policy
Transylvanian Review of Administrative Sciences ( IF 0.892 ) Pub Date : 2018-06-29 , DOI: 10.24193/tras.54e.2
Lucian Croitoru ,

This article shows that if, in a young democracy with weak institutions, one and the same party governs in virtually all upswings of the business cycle and promotes each time pro-cyclical fiscal policies, three serious negative effects emerge. The first is the loss of fiscal policy; fiscal policy remains pro-cyclical during the downturn as well, deepening the recession and extending the period in which output stays below potential. The second effect is the loss of democracy; unable to use fiscal policy to help exit the recession and speed up economic growth, the parties governing during downturns compounded by the pro-cyclicality of fiscal policies are perceived by the public as impotent and are penalized accordingly through a lower share of parliamentary seats, until the party that governs exclusively during business cycle upturns finds itself without a real opposition. The third effect is the loss of conventional monetary policy, manifesting if interest rates and inflation are low when recession sets in. Under these circumstances, lowering the monetary policy rate to zero might no longer suffice to stimulate the exit from recession and the quick return of output to its potential level, leaving central banks no option but to resort to unconventional monetary policies, such as quantitative easing.

中文翻译:

永久实行周期性的财政政策,我们可能会失去民主和货币政策

本文表明,如果在一个制度薄弱的年轻民主国家中,一个政党几乎由同一党派执政,并且每次促进顺周期财政政策的实施都会产生三个严重的负面影响。首先是财政政策的丧失。在经济低迷时期,财政政策也保持顺周期,从而加剧了经济衰退,并延长了产出保持在潜在水平以下的时期。第二个影响是民主的丧失。由于无法使用财政政策来帮助摆脱衰退并加快经济增长,因此在经济低迷时期执政的政党加之财政政策的顺周期性被公众视为无能为力,并因此受到议会席位减少的不利影响,直到专门在商业周期中执政的政党在没有真正反对的情况下找到自己。第三个影响是传统货币政策的丧失,表现为在衰退开始时利率和通货膨胀率较低。在这种情况下,将货币政策利率降低至零可能不再足以刺激衰退的退出和货币的快速回归。产出达到其潜在水平,中央银行别无选择,只能诉诸非常规的货币政策,例如量化宽松。
更新日期:2018-06-29
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