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Article
The Return of Fiscal Policy: Disentangling Fiscal Theory of Price Level
Author(s)
Theodore Chatziapostolou
Full-Text PDF XML 342 Views
DOI:10.17265/1548-6591/2022.02.002
Affiliation(s)
National and Kapodistrian University of Athens, Athens, Greece
ABSTRACT
Fiscal policy has always been a central issue of macroeconomic theory and policy. Its content, impact, and strength as a policy tool have formed the framework of economic debate. The pandemic crisis has triggered a deep global economic recession, and the debate on debt has returned in full force. The aim of this paper is to contribute to this debate in a different point of view. Based on the Fiscal Theory of Price Level, we would like to theoretically discuss three issues, namely, whether government bonds are net wealth, whether price level is a sufficient mechanism to restore equilibrium in the case of excessive debt, and, finally, whether budget constraint is a constraint condition. The paper is organised on these three issues. We start discussing the Fiscal Theory of Price Level, and the next three sections are devoted in the abovementioned issues. We conclude with the empirical findings from US and UK.
KEYWORDS
Fiscal Theory of Price Level, debt, fiscal policy
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