BUDGET PERSPECTIVES 2008: FISCAL POLICY FOR A SLOWING ECONOMY

Lane, Philip R. (2008) BUDGET PERSPECTIVES 2008: FISCAL POLICY FOR A SLOWING ECONOMY. [Policy Paper]

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Abstract

The aim of this paper is to consider the implications for fiscal policy of a deceleration in output growth. This is an important topic, since membership of EMU means that fiscal policy is the now main policy instrument for macroeconomic stabilisation. It is relevant, since there are several warning signals that suggest that the probability of an economic slowdown has increased. Although there are elements that are common to other member countries of EMU, Ireland is a special case in many ways in view of its outlier status in terms of extraordinarily rapid growth over the last decade. Moreover, output growth has been outpaced by tax revenues and major public expenditure items, such that the potential scale of adjustment in fiscal policy is non-trivial.

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