Resumen

PEREZ CALDENTEY, Esteban. Chicago, Keynes and Fiscal Policy. Inv. Econ [online]. 2003, vol.62, n.246, pp.15-45. ISSN 0185-1667.

During the first half of the 1930's, the founders of the Chicago School of economics and John Maynard Keynes in England advocated public works as a cure for unemployment and a way to overcome the Great Depression. Counter cyclical fiscal policy was seen as a feasible strategy to attenuate the phases of the economic cycle and was advocated on the basis of market rigidities and the impotency of monetary policy.

By the end of the decade both Chicago economists and Keynes had departed from this fiscal policy stance. The former became concerned with the inflationary consequences of expansionary fiscal policies, especially when there was the temptation to implement them pro cyclically. Ultimately, fiscal issues were overshadowed by monetary policy concerns.

Keynes remained an advocate of counter cyclical fiscal policy but recanted from the instruments he had proposed earlier to combat economic fluctuations. Using the framework he developed in the General Theory (1936), he extended the division of income (consumption) and non-income (investment) related categories to the government's budget. Thus, Keynes distinguished between a current (government consumption) and a capital (government investment) budget. The current budget was to be in balance or show a surplus to finance the capital budget, which in turn played the fundamental stabilizing role. This allowed him to advance two different concepts of fiscal policy, capital and deficit budgeting. Capital budgeting, to which he adhered under the assumption of capital scarcity, meant rejecting the short-term stabilization tools associated with deficit budgeting (public works and the use of taxation to alter consumption patterns). Once the capital saturation point was reached fiscal policy could change its focus from investment to consumption and perhaps from capital to deficit budgeting.

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