Fiscal Deficit and Crowding Out Case for an Expansionary Fiscal Policy

Abstract : In an editorial on April 3, 2020, the Financial Times, a neoliberal mouthpiece wrote: “Radical reforms in reversing the prevailing policy direction of the last four decades will need to be put on the table. Governments will have to accept a more active role in the economy. They must see public services as investment rather than as liabilities and look for ways to make the labour market less insecure. Redistribution will again be on the agenda… Policies until recently considered eccentric such as basic income and wealth taxes will have to be in the mix.” This emphasizes the role of fiscal policy and redistribution to boost economic recovery in a worldwide recession. In this paper we discuss in detail the role of globalized finance in determining fiscal policy in sovereign states. At the same time, we also explore the phenomena of crowding out in demand constrained economies in general and Indian economy in particular.