In the most general sense, approaching fiscal policy as a 'good' allows us to recognize the trade-offs for too much or too little of it. All goods are this way, so fiscal policy should be no different. Thus, the hindrance would be too use the tool too much at the expense of other things (goods). It is extremely easy to become spending-oriented when in government positions, especially when many of the projects clearly perform valuable functions for society. But one can become addicted and go too far. This is the concern: where is the Goldilocks position?

One major caveat is that if monetary policy is pursuing a constant inflation policy, then simple aggregate demand management with fiscal policy becomes impotent.

There are a host of other concerns, of course, but this is an overarching approach before one gets to the minutiae.

Thanks for the wonderful reply.

Conflict may arise between fiscal goals for more investissements and monetary goals for low inflation. The solution may be to fix the optimal inflation level as a treshold beyond which, inflation has big negative effectif on investissements and growth.

Thanks Dear Florent

Conflict may arise between fiscal goals for more investments and monetary goals for low inflation. The solution may be to fix the optimal inflation level as a threshold beyond which, inflation has big negative impact on investments and growth.

for example:

depreciation or appreciation of the exchange rate (plus so-called competitive devaluations);

the rise of interest rates on the government bonds and hence increase of the public debt

Dear Colleagues and Friends from RG, In many countries, completely separate institutions deal with fiscal and monetary policy. On the other hand, however, treated as a priority activation of the economic situation may require coordination of the implementation of the common objectives of fiscal and monetary policy. In many aspects, the implementation of key fiscal and monetary policy objectives is often carried out informally in a coordinated manner if there are no barriers to this type of informal cooperation between formally independent institutions on political issues. There are many differences between the implementation of fiscal and monetary policy, mainly regarding the instruments of state interventionism used, their operation for activating economic growth and used in a different way, which may be determined by the structural differences of individual national economies and the scale of the role and the importance of the commercial and public financial system of the country. In addition, an important issue is the constituted specific central banking model, the position of a specific financial system model entered into the Constitution and specific monetary policy instruments entered into the Act on the central bank of the state, and the role of the central bank in financing the budget deficit through participation in open market operations in transactions involving Treasury bonds with a possible redemption option if the central bank has at its disposal full instruments of domestic monetary policy, i.e. when the currency operates in the domestic economy. In addition, the structure of revenues and expenses in the state budget, the type of dominant categories of budget revenue sources and the specifics of the structure of expenditure are also important, i.e. what proportion of the state budget expenditure is absorbed by the public finance system and the provision of basic categories of public goods, including ensuring the security of citizens in basic categories of existence in a modern developed state, and what part of the expenditure is of an investment nature, i.e. it finances the emergence of durable capital goods, e.g. in the sphere of communication infrastructure, energy, drinking water resources, etc., i.e. economic undertakings that will pay off in the future by many years and will improve the living conditions of citizens and the possibility of effective development of business entities. It sometimes happens that in some areas there may be conflict during the implementation of fiscal and monetary policy. However, these are very rare situations and most often they are a derivative of internal factors, i.e. earlier wrong political decisions or external factors, i.e. very dynamically developing global financial and economic crises, whose effects appear quickly in individual countries and cause hard to control strong decline in economic growth. I conduct research in this area. The conclusions of the research I published in scientific publications that are available on the Research Gate portal. I invite you to cooperation.

Best wishes

Dariusz Prokopowicz

The development of an active, anti-crisis, pro-development economic policy composed of, inter alia, fiscal and monetary policy may generate a conflict in the use of the national currency as an instrument to activate economic processes, shaping the amount of money in the economy, inflationary pressure, the domestic currency exchange rate, and the level of liquidity risk in public finances countries, the level of public debt, etc. On the other hand, in the context of the recent global financial crisis of 2008 and the current economic downturn caused by the SARS-CoV-2 (Covid-19) coronavirus pandemic, governments in many countries, especially in developed economies with a stable, strong national currency internationally recognized they pursue an active, anti-crisis, pro-development, interventionist, in many aspects Keynsian and monetarist economic policy, using its individual elements to mitigate the negative economic effects of economic crises and fin nsowych. These instruments include, among others, a constantly modified fiscal policy, activating selected types of economic entities, and a gentle monetary policy supplying the economy with subsequent volumes of money activating consumption and investments of the public and indirectly private sectors. As between the implementation of these common macroeconomic goals there may be conflicts in the implementation of sub-goals between the fiscal policy pursued by the ministries of finance and / or the treasury and the monetary policy pursued by the central bank, these institutions are usually constitutionally, institutionally, formally separated, and operate independently. In practice, however, the single macroeconomic socio-economic policy pursued by the government in many countries consists in the coordinated action of these institutions as part of the implementation of common goals consisting in activation of economic growth and undertaking interventionist measures, launching pro-development and anti-crisis processes and instruments. Of course, these coordinated activities are not always carried out perfectly, and there are mistakes in this matter. Often these mistakes lead to further financial and economic crises. When these subsequent crises appear, the revision of economic policies, including fiscal and monetary policies, is started again. Policies are changed, modified in order to create new formulas of interventionist actions and anti-crisis and pro-development instruments. Formulas known from the past often arise, but are constructed or named in a slightly different way. Often, these modifications are correlated with the current policy of a specific government team within a period of several years. In view of the above, the ideal situation is to create solutions in the field of shaping economic policy, including fiscal and monetary policy, which will not lead to an increased risk of subsequent financial and economic crises. However, if ad hoc, short-term political goals dominate the goals of long-term, stabilized, sustainable economic development, unfortunately it often leads to generating another economic and / or financial crisis in the next several or several years. Then the current economic policy is revised and modified over and over again until they are considered priority goals of long-term, stabilized, sustainable and in recent years also pro-ecological economic development.

Best regards,

Dariusz Prokopowicz