Publication

As Congress in 2013 considers policies to foster economic growth, arguments have been made that some traditional expectations of fiscal policy should be revisited, namely that cutting spending will contract the economy in the short run. Under this view, what would normally be considered contractionary fiscal policy would instead be expansionary. This contrasts with “mainstream economics” that relies on a basic theory regarding policies to expand the economy in a downturn. This report gives an overview of this mainstream theory and then examines the evidence that has been used to challenge this theory.