Keywords: Business cycles, inefficient allocations, government spending multiplier, non-Ricardian households, countercyclical policies
JEL codes: E32, E63
Abstract
The present paper describes recent research on two central themes of Keynes' General Theory: (i) the social waste associated with recessions, and (ii) the effectiveness of fiscal policy as a stabilization tool. The paper also discusses some evidence on the extent to which fiscal policy has been used as a stabilizing tool in industrial economies over the past two decades.
