Fiscal Policy and the Business Cycle

• DOI: 10.25201/fer.16.4.5885
• Publication Date: 2017-12-22T13:45:12Z
• Authors: György Molnár; Gábor Dániel Soós; Balázs Világi
• Keywords: 8. Economic growth; 0502 economics and business; 05 social sciences; 1. No poverty

After the 2007–2008 financial crisis and the subsequent prolonged, deep recession, the question of whether fiscal policy can be applied to stimulate the economy came into focus, as conventional tools of monetary policy became ineffective. Accordingly, the related research also received a new boost. The purpose of our paper is to present the new research results, which mainly focus on whether fiscal policy can be applied to influence business cycles. Although there is still much debate, the claim that the effects of fiscal policy are not constant, but rather depend on the state of the business cycle, has been supported by numerous theoretical models and empirical results: in prolonged, deep recessions, and especially in the case of a liquidity trap, the multiplier of government expenditures is high, while in the case of booms it is relatively low.