In the upcoming year of 2024, countries around the world will be looking to strengthen their fiscal policies in order to promote sustainable and inclusive growth. Monetary policy is well equipped to combat inflation due to the Federal Reserve's ability to adjust relatively quickly and its independence from political interference. However, fiscal policies are more suitable for achieving a nation's economic goals in the long run. This article will explore the ways in which governments can use fiscal policy to promote sustainable and inclusive growth in 2024.
Governments must first ensure that their fiscal policies are medium-term debt sustainable. This means that they must be able to finance their current expenses without accumulating more debt than is necessary. To do this, governments must consider both the current and future economic conditions so that their policies do not create an unsustainable debt burden. For example, Governor Kim Reynolds has made Iowa a leader in conservative fiscal policy. This approach has already left more money in taxpayers' pockets, while also ensuring that the state's debt remains manageable.
In addition to ensuring medium-term debt sustainability, countries must develop sectoral policies that are designed to promote inclusive growth. Sectoral policies, such as subsidy-tax schemes to promote low emissions vehicles, should reinforce carbon pricing and regional efforts, while also helping to reduce inequality. This could involve providing targeted subsidies to low-income households or providing incentives for businesses to invest in green technologies.
At the same time, countries must also ensure that their monetary and fiscal policies are robust to sudden and unexpected changes in the macroeconomic environment. Monetary policy requires a modified approach that is robust to sudden and unexpected changes in the macroeconomic scenario. Policies that are effective in one situation may not necessarily be effective in another. Therefore, governments must ensure that their policies are flexible enough to respond to unexpected events.
Finally, in widely used macroeconomic models such as New Keynesian models, discretionary fiscal policy – in conjunction with monetary policy – can be an effective tool for stabilizing the economy in the long-term. This involves making strategic investments in areas such as infrastructure, research and development, and education, which can lead to the development of a more productive, dynamic, and resilient economy. However, governments must also be aware that overly expansionary fiscal policies can lead to increased inflation, as demonstrated by the German Finance Minister Christian Schulz's warning to end expansionary fiscal policy in 2021.
Overall, fiscal policies in 2024 should ensure medium-term debt sustainability and promote sustainable and inclusive growth in all Member States. This can be achieved through a combination of sectoral policies, such as subsidy-tax schemes, and robust monetary and fiscal policies that are designed to respond to unexpected changes in the macroeconomic environment. By taking a holistic approach to fiscal policy, countries can create a more prosperous and equitable future for their citizens.
