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New CIS Policy Monograph: Fiscal Rules for Limited Government

Robert Carling and I have released a new CIS Policy Monograph, Fiscal Rules for Limited Government: Reforming Australia’s Fiscal Responsibility Legislation.  The paper makes the case for a rules-based framework for fiscal policy to replace the Charter of Budget Honesty, as well as the establishment of a new Fiscal Commission to increase the independence, transparency and accountability of the federal budget process.

There is a write-up in the SMHJulie Novak makes a similar case in The Canberra Times.

posted on 08 July 2009 by skirchner in Economics, Fiscal Policy

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Just read the monograph. Very interesting. Improving fiscal responsibility through incentives (and disincentives) is concept I applaud.

Absent fiscal policy, leaving monetary policy to stimulate aggregate demand in recessions may be problematic though. Especially in a global credit market. Further reductions in the RBA cash rate may result in minimal (if any) reductions in the rates available to businesses and individuals. This hinders the transmission of monetary policy through the economy.

That leaves the economy to fight off recession with one broken arm and the other arm tied behind its back.

Noting the arguments against fiscal policy and Keynesian economics, it is still not a comfortable trade-off.

Posted by .(JavaScript must be enabled to view this email address)  on  07/09  at  07:09 AM


“Further reductions in the RBA cash rate may result in minimal (if any) reductions in the rates available to businesses and individuals. This hinders the transmission of monetary policy through the economy.”

I don’t think this channel is completely broken.  So long as there is some effect, you can calibrate official rate cuts to get the desired pass through.  There are also alternative operating procedures, like quantitative easing, that could be used, if needed.

Posted by skirchner  on  07/09  at  07:17 AM



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