Report
Patrick Artus

When is it efficient to increase the fiscal deficit only to have to reduce it later?

We will take the example of France, but this analysis could be applied to any country. The economic policy choice made today is to sharply increase the fiscal deficit, mainly to support household purchasing power in the face of rising inflation through significant public transfers. Public debt sustainability will have to be ensured in the future, which will be all the more difficult as long-term interest rates will rise. The primary fiscal deficit will then have to be reduced, especially as the public debt will have been increased previously by the initially expansionary fiscal policy. Under what circumstances does this back-and-forth fiscal policy (expansionary then restrictive) make sense? Only if the purchasing power problem is transitory and has disappeared once fiscal policy must become restrictive. If commodity prices now remain permanently high and the purchasing power problem is therefore permanent, this policy makes no sense.
Provider
Natixis
Natixis

Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.

 

Analysts
Patrick Artus

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