Fiscal Policy Approaches: An Inquiring Look From The Modern Monetary Theory

Abstract

An analytical framework of fiscal policy called Modern Monetary Theory (MMT) has been popularized in recent years. Its coming into play has not been free of controversy because many of its elements enter into a certain contradiction—when they are not directly incompatible—with many principles solidly established in orthodox—and even heterodox—literature. This has led many authors to consider that the MMT is not an academic contribution, but a kind of economic precepts that have no basis in economic theory, which has led to harsh criticism and disqualification, some by renowned economists such as Paul Krugman, Kenneth Rogoff, or Lawrence Summers. However, the particular theoretical approaches of the MMT could be precisely useful to appease—or at least better understand– some controversies in the fiscal policy literature at the empirical level. This work is intended to shed light on this issue.