| Title | Fiscal policy and public debt |
|---|---|
| Contributor | Ricardo Reis (author) |
| Andrés Velasco(author) | |
| DOI | https://doi.org/10.31389/lsepress.tlc.f |
| Landing page | https://doi.org/10.31389/lsepress.tlc.f |
| License | https://creativecommons.org/licenses/by-nc/4.0/ |
| Copyright | Author(s) |
| Publisher | LSE Press |
| Published on | 2025-10-16 |
| Short abstract | The original Washington Consensus fiscal policy principles involved f iscal discipline, public spending on physical and human capital, and broad tax bases with low tax rates. While these principles remain sound, in this paper we add two new principles supported by theory, evidence, and experience. The first new principle involves using targeted transfers to offset shocks that economic agents cannot insure against, and using transfers and public credit to preserve markets when a market-maker of last resort is needed. This policy will involve f luctuating public balances and infrequent but large public deficits during crises, which in turn requires a second principle to ensure the necessary fiscal space. That second principle is to preserve the special nature of public debt, keeping government bonds safe and liquid, via rigorous fiscal rules and credible fiscal and monetary institutions. For most countries, the existence of a global financial safety net is also essential to the successful implementation of this second principle. This chapter includes responses to Ricardo Reis and Andrés Velasco by Olivier Blanchard and Chryssi Giannitsarou. |
| Long abstract | The original Washington Consensus fiscal policy principles involved f iscal discipline, public spending on physical and human capital, and broad tax bases with low tax rates. While these principles remain sound, in this paper we add two new principles supported by theory, evidence, and experience. The first new principle involves using targeted transfers to offset shocks that economic agents cannot insure against, and using transfers and public credit to preserve markets when a market-maker of last resort is needed. This policy will involve f luctuating public balances and infrequent but large public deficits during crises, which in turn requires a second principle to ensure the necessary fiscal space. That second principle is to preserve the special nature of public debt, keeping government bonds safe and liquid, via rigorous fiscal rules and credible fiscal and monetary institutions. For most countries, the existence of a global financial safety net is also essential to the successful implementation of this second principle. This chapter includes responses to Ricardo Reis and Andrés Velasco by Olivier Blanchard and Chryssi Giannitsarou. |
| Language | English (Original) |
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Ricardo Reis is the A.W. Phillips Professor of Economics at LSE. He was elected a Fellow of the British Academy, the Academia de Ciências de Lisboa, and the Econometric Society. Recent honours include the 2022 Carl Menger prize, the 2021 Yrjö Jahnsson Award, the Banque de France and the Toulouse School of Economics 2017 BdF/TSE junior prize, and the 2016 Bernácer prize. Reis is an academic consultant at the Bank of England, the Riksbank, the Federal Reserve Bank of Richmond, and the European Stability Mechanism. He directs the Centre for Macroeconomics at LSE, and he serves on the council and is an advisor of multiple organisations. He has published widely on macroeconomics, including both monetary and fiscal policy, inflation, and business cycles. Reis received his PhD from Harvard University, and was previously on the faculties at Columbia University and Princeton University.
Anthony Venables is a Senior Research Fellow at the University of Oxford and part-time Research Professor at Monash University, Melbourne. He is a fellow of the Econometric Society, the Regional Science Association International, and the British Academy. Former positions include Professor of Economics at Oxford University and at LSE, and chief economist at the UK Department for International Development. He has published extensively in the areas of international trade, spatial economics, natural resources, and economic development.
Olivier Blanchard, senior fellow and former C. Fred Bergsten Senior Fellow at the Peterson Institute for International Economics, is the Robert M. Solow Professor of Economics emeritus at MIT. A citizen of France, Blanchard has spent most of his professional life in the United States. After obtaining his PhD in economics from MIT in 1977, he taught at Harvard University and returned to MIT in 1982. He was chair of the economics department from 1998 to 2003. In 2008, he took a leave of absence to serve as economic counsellor and director of the research department at the IMF, where he stayed until 2015. He then joined the Peterson Institute.
Chryssi Giannitsarou is a Professor of Macroeconomics and Finance at the University of Cambridge. With postgraduate degrees from LSE and London Business School (LBS), her research spans a wide range of topics, such as financial decision-making, macroeconomic dynamics, economic networks, international finance, and she has been published in many leading economic journals. She is a fellow of King’s College Cambridge and a research fellow of the CEPR.