What are the advantages of using expansionary fiscal policy to stimulate economic growth? (2024)

O efeito multiplicador (keynesiano) básico exagera o impacto do gasto do governo por alguns motivos. Ele desconsidera o efeito do déficit público sobre os juros, e a consequente “expulsão” (crowding-out) do investimento privado na demanda agregada. Ele também não considera o impacto sobre o câmbio real e as exportações, um canal muito importante para economias abertas. Assim, o gasto público se mostra como uma alternativa para estímulo da economia apenas quando há uma crise séria de colapso da demanda efetiva, como ocorreu em 2008 na crise financeira internacional. Nesses casos a demanda privada não responde mais a juros, e o governo pode reestabelecer a demanda via gastos autônomos.

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Expansionary fiscal policy, employed by governments to stimulate economic growth, has several advantages, particularly when compared to monetary policy.Fiscal measures can be designed to target specific sectors or areas in need. For instance, increased spending on renewable energy infrastructure projects not only boosts overall demand but also creates jobs, improves long-term productivity, and creates a clear signal to the rest of the world that the country views this as a long-term strategy. In contrast, monetary policy generally affects the entire economy and may not address specific areas that need the most support.

📌Stimulates economic growth:Increased spending and aggregate demand can lead to higher GDP, output, and employment.📌Reduces unemployment:Increased economic activity can lead to new job creation, benefiting individuals and reducing societal costs associated with unemployment.📌Boosts consumer confidence:Increased spending and economic activity can create a more optimistic economic climate, encouraging further investment and spending.

Increased investment: When businesses see that consumers are spending more, they are more likely to invest in their operations, expanding their workforce and creating more jobs.Reduced unemployment: As businesses invest and expand, they need more workers, leading to a decrease in unemployment.Improved infrastructure: Government spending on infrastructure projects, such as roads, bridges, and public transportation, can improve the quality of life and economic activity.Counteracting recessions: Expansionary fiscal policy can help to stimulate economic growth during recessions, preventing or mitigating their severity.

A literatura econômica é bastante clara que para pequenas economias abertas (como as economias emergentes, ou mesmo desenvolvidas de menor porte) o multiplicador do gasto é zero. A expansão fiscal pressiona o mercado de crédito, atraindo poupança privada que seria usada para investimento. A taxa de juros se eleva, e junto com a queda do investimento há atração de poupança externa (em dólares) apreciando a moeda. Isso torna o câmbio real mais forte, estimulando importações e desestimulando exportações. No final houve apenas modificação da composição da demanda agregada, sem efeitos de estímulo. No caso de economias endividadas o efeito pode ser até negativo, com a queda de investimento e exportações superando o aumento do gasto público.

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Increased Budget Deficits and Debt: Expansionary fiscal policy can lead to increased government spending, which can put a strain on the government's finances and result in widening budget deficits and higher government debt levels. This can raise concerns about the government's ability to service its debtInflationary Pressures: If the government injects too much money into the economy, it can lead to excessive demand and inflation. This can erode purchasing power, harm consumer spending, and make it difficult for businesses to plan for the future.Crowding Out Private Investment: When the government increases its borrowing, it can drive up interest rates, making it more expensive for businesses to borrow money.

Inflation Risk: Excessive demand may lead to inflationary pressures.Budget Deficit: Increased spending without revenue may widen fiscal deficits.Time Lag: Policy effects may not be immediate; there could be a time lag.

Para economias abertas a política monetária, com regimes de câmbio flutuante, é a principal alternativa para estimular a demanda agregada. Cortes de juros e expansões do nível de crédito estimulam o consumo e o investimento privado doméstico. Além disso, com juros mais baixos há depreciação da moeda, favorecendo exportações vis-a-vis importações. O grande risco, nesse caso, é de inflação através do aumento da oferta de moeda. Por isso tanto esforço tem sido feito nas últimas décadas para a montagem de modelos institucionais com regras para a expansão monetária.

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📌Monetary policy:Central banks can use interest rate adjustments and quantitative easing to stimulate borrowing and investment.📌Structural reforms:Policies aimed at deregulation, improving education and labor markets, and fostering competition can improve long-term economic growth.📌Supply-side policies:Measures like tax breaks for research and development or investments in infrastructure can boost productivity and potential output.

📌Expansionary fiscal policy can be a useful tool for stimulating economic growth, but it comes with potential drawbacks like budget deficits and inefficiency.📌The effectiveness of such policies depends on factors like economic conditions, policy design, and implementation.📌A balanced approach combining fiscal and other policy tools is often recommended for sustainable economic growth.

Furthermore, details matter: what are the causes of the output gap (demand shock/supply shock) and how government spending (tax cuts) address these causes. Furthermore, how the policies are implemented matter. Finally, it maters if fiscal policy would achieve your goal better/faster than alternative policies - like monetary policies

🤔 Imagine a sluggish economy, like a car stuck in mud. Expansionary fiscal policy acts like a tow truck, injecting money into the system. Increased government spending on infrastructure creates jobs, boosting consumer confidence and spending. Tax cuts leave more money in people's pockets, further fueling consumption and business investment. The car starts moving, pulling the entire economy out of the rut.👉 Criticisms:1. Crowding Out: Government spending can displace private investment, hindering long-term growth.2. Debt Burden: Excessive deficits can saddle future generations with crippling debt.3. Poorly targeted spending can be wasteful and ineffective.4. Short-term political gains can lead to irresponsible fiscal expansion.

Imagine a government as a chef; it can either spice up the economy with more spending or add sweetness with tax cuts. However, too much spice (spending) might make the economic dish too hot (inflation), and too much sugar (tax cuts) can lead to a budgetary toothache (deficit). It's a delicate recipe!

Expansive fiscal policy has its advantages in supporting the economy. However it shouldn’t be looked at in isolation vs monetary policy. The most complex situation is when fiscal policy contradicts monetary policy. For example what we saw over 2023 with dramatically restrictive monetary policy alongside extraordinary expansive fiscal policy. It’s made the job of central bankers in their fight against inflation very complex.