Fiscal Policy of Spain
FELIPE SERRANO
The Spanish fiscal policy during the recent “great recession”
Abstract: This paper examines the fiscal strategy followed by the Spanish government in order to stop the fall of aggregate demand induced by the financial crisis. The Spanish economy provides the best example among the countries of the European Monetary Union of the contradictions between the discretionary fiscal policy in the crisis and the fiscal rules. The intensity of the crisis and some initial badly designed fiscal stimulus shortened the fiscal space, raising the deficit over the limit established in the Stability and Growth Pact. As a consequence of the enforcement of the rule, the Spanish administration has to apply a restrictive fiscal policy without having left the recession, while keeping one of the lowest indebtedness levels in the euro zone countries. Key words: fiscal policy, fiscal rules, Spain.
In a recent article, Auerbach indicated that “the current recession provides compelling circumstances for renewed fiscal policy activism. But the strong support for fiscal policy intervention reflects a renewed belief in policy activism that had already appeared before the present crisis” (2009, p. 548). It is true that during the last years, we have observed the theoretical rediscovery of the advantages of the fiscal policy to control aggregate demand. This new interest, though, is not generalized and has not been able to provide enough “inputs” for the design of new fiscal strategies. The claims for an active fiscal policy have always been one of the distinct features of Post Keynesian thought, which has considered fiscal policy as a more powerful instrument than monetary policy (Arestis and Sawyer, 2003). However, as Arestis and Fontana point out, “it is really
Felipe Serrano is a professor of economics in the Department of Applied Economics V at the University of the Basque Country, Spain. This paper was presented at the International Conference Developments in
The Spanish fiscal policy during the recent “great recession”
Abstract: This paper examines the fiscal strategy followed by the Spanish government in order to stop the fall of aggregate demand induced by the financial crisis. The Spanish economy provides the best example among the countries of the European Monetary Union of the contradictions between the discretionary fiscal policy in the crisis and the fiscal rules. The intensity of the crisis and some initial badly designed fiscal stimulus shortened the fiscal space, raising the deficit over the limit established in the Stability and Growth Pact. As a consequence of the enforcement of the rule, the Spanish administration has to apply a restrictive fiscal policy without having left the recession, while keeping one of the lowest indebtedness levels in the euro zone countries. Key words: fiscal policy, fiscal rules, Spain.
In a recent article, Auerbach indicated that “the current recession provides compelling circumstances for renewed fiscal policy activism. But the strong support for fiscal policy intervention reflects a renewed belief in policy activism that had already appeared before the present crisis” (2009, p. 548). It is true that during the last years, we have observed the theoretical rediscovery of the advantages of the fiscal policy to control aggregate demand. This new interest, though, is not generalized and has not been able to provide enough “inputs” for the design of new fiscal strategies. The claims for an active fiscal policy have always been one of the distinct features of Post Keynesian thought, which has considered fiscal policy as a more powerful instrument than monetary policy (Arestis and Sawyer, 2003). However, as Arestis and Fontana point out, “it is really
Felipe Serrano is a professor of economics in the Department of Applied Economics V at the University of the Basque Country, Spain. This paper was presented at the International Conference Developments in