The Fiscal Placebo

• Main Author: Hana Lipovská
• Format: Article
• Language: English
• Published: University of Finance and Administration 2015-12-01
• Series: ACTA VŠFS
• Subjects: Czech economic policy; fiscal discretion; fiscal placebo; Great Recession; implementation lag; signalizing function
• Online Access: https://is.vsfs.cz/auth/repo/5134/LIPOVSKA.pdf

Discretionary fiscal policy is associated with long time lags that, according to many authors, prevent its efficient implementation during economic crises. Implementation lags, i.e. the lag between the day on which economic policymakers decide on a specific form of response to the actual economic situation and the day on which a relevant law takes effect, have the signalling function. In this article we analyse the implementation lag in the discretionary fiscal policy in the Czech Republic during economic crises. First, we present arguments according to which time lags are pro-cyclic and thus they prevent implementation of the discretionary fiscal policy. We will verify the grounds behind the arguments concerning the Czech economy. Furthermore, we focus on the reasons due to which the implementation lag may be neutral as concerns the economic cycle. In the third part, we present our own concept of fiscal placebo pursuant to which the implementation lag may have negative, neutral, or even positive impacts on the actual economy. We have demonstrated, that anti-crisis laws have taken effect, with a single exception, always only after the end of the recession to which they were supposed to react and the volume of the funds used by the government to achieve stabilization is relatively low.