Research / BFI Working PaperJan 25, 2018

Unconventional Fiscal Policy

In this article, we define and propose preliminary empirical evidence for an alternative type of policy measure, which we call unconventional fiscal policy. We define unconventional fiscal policies as those policies that generate an increasing path of consumption taxes that result in households’ higher inflation expectations and negative real interest rates. Negative real interest rates can stimulate household consumption, and result in increased spending, and ultimately higher growth. Thus, the main objective of unconventional fiscal policies is to increase households’ inflation expectations even when conventional monetary policy is constrained.

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