Principles of Budgetary and Financial Policy

What principles should govern the design of governmental. budgetary and
financial policy? Policymakers in the major industrial countries and officials of
international organizations are deeply concerned about rising public debt burdens.
But there are others who believe that only public spending on goods and services
matters, while public debt and deficits are irrelevant. Principles of Budgetary and
Financial Policy seeks to bridge the gap between these views, showing how rigorous
economic theory can be applied to the study of fiscal, financial, and monetary
policy and examining the contributions of such policy to the goals of cyclical
stabilization, structural adjustment, and secular growth in modern "mixed"
economies.This book brings together twelve years of Willem Buiter's work on fiscal
and financial policy, including both previously published and new essays. In
addition to raising the level of policy debate, it unites the two subdisciplines
into which economists have split the study of fiscal and financial policy: the
microeconomic theory of neoclassical public finance and the macroeconomic
neoKeynesian theory of stabilization policy.The book's introductory section sets the
scene through broad ranging, nontechnical papers emphasizing the unavoidable
interconnection of the stabilization role of fiscal policy with its allocational and
distributional roles. In the following sections Buiter focuses on the measurement of
public sector activity over time, considering how (and to what extent) a longer-run
perspective on the government's finances can be summarized in a single comprehensive
government balance sheet. He examines "crowding out," the displacement of private
economic activity by public economic activity, explaining why and how public debt
and deficits matter and emphasizing the distinction between various financing
issues. The fiscal origins of inflation are addressed, as well as the eventual
monetization of public sector deficits. In an extensive concluding essay Buiter
considers the role of fiscal policy in stabilization and structural adjustment in
open developing countries.