Fiscal policy is back in France and the United Kingdom!

In this paper, we analyze the resurgence of discretionary fiscal policy in the fiscal theory of the price level (FTPL) framework. Despite its reliance on the new consensus macroeconomic (NCM) framework, the FTPL concludes that fiscal policy may lead monetary policy without hampering macroeconomic stability. We show that an empirical model deriving from this theory gives very interesting results: in France and the United Kingdom, fiscal policy has positive long-run effects. This is at odds with the orthodox nature of FTPL promoters who usually advocate fiscal rules and sanctions. We interpret our results as being consistent with Post Keynesian economic thinking. We conclude that the move of some economists from the NCM school of thought in favor of discretionary fiscal policy has promoted the visibility of Post Keynesian ideas on this topic.