Rethinking Economic Policy in the Age of Financialization: Why the Barro-Ricardo Theory Cannot Make Sense

Giuseppe Mastromatteo, Lorenzo Esposito

Research output: Contribution to journalArticlepeer-review

Abstract

The 2008 crisis brought forth a rethinking of the role of economic policies. We would like to analyze a specific point of this debate: the effect of financialization on fiscal policy. In doing so, we find it useful to analyze the debate on the Barro-Ricardo equivalence (BRE), which, since the 1970s, has played an important role in molding the economic policies that fostered the crisis. The original Barro article (1974) attacked counter-cyclical policies as futile, claiming that they could not boost the economy due to private investment crowding-out. We will try to explain why the traditionally understood assumptions of this theory and its conclusions are not helpful for analyzing the contemporary economy before finally offering alternative interpretations.
Original languageEnglish
Pages (from-to)1-6
Number of pages6
JournalBINZAGR INSTITUTE FOR SUSTAINABLE PROSPERITY POLICY NOTES
Volume2017
Publication statusPublished - 2017

Keywords

  • Barro Ricardo equivalence
  • equivalenza ricardiana
  • financialization
  • finanziarizzazione

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