Fiscal macroeconomic stabilization: a new era?

This article aims to argue with the wide-spread perception of discretionary fiscal policy as a poor macroeconomic stabilization tool, especially in comparison with the contemporary performance of monetary policy. European Monetary Union Member States are hit by the asymmetric shocks or respond dissimilarly to a common shock. This is the strongest reasoning for the rehabilitation of active fiscal macroeconomic stabilization. Prudent fiscal and debt management policies are powerful to mitigate the economic impacts of various shocks at a national level and thus to replace the loss of autonomous monetary and exchange rate policy. The resurrection of fiscal policy is contingent on the efective institutional framework for its implementation. The principle of proposed reforms in fiscal policy stems from political economics background and corresponds to recent reforms in monetary and public debt management institutions. The only way how to address the traditional incentive constraints of policy discretion is to set up an independent fiscal agency outside of Ministry of Finance.

Keywords: fiscal policy, stabilization policies, public debt management, political economics