Abstract
Monetary/fiscal policy conflicts are a ‘game’ that most industrial countries play most of their time. Monetary authorities navigating between the Scylla of high inflation and the Charybdis of insufficient growth naturally prefer low budget deficits that were mainly or entirely financed by capital markets. On the other hand, fiscal policy-makers competing for voters’ sympathies, in general, favour high spendings but, at the same time, shun taxes. The outcome for the economy then, normally, depends both on the relative strength of both parties and on general social-economic, institutional and historical circumstances influencing their decisions.1
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