Empirical and theoretical evidence from the existing literature and that gained in this thesis shows that fiscal policy works and expands the economy despite the finding in this thesis that perhaps the size and duration of the fiscal expansion matters. The debate on the size of the fiscal multiplier is not settled either but what is incontrovertible is the effect expansionary fiscal policy has on output and inflation.
And this finding is informative for economic policy makers in the United States of America, United Kingdom and Germany even as low growth-low inflation threatens to turn into widespread deflation.
In conclusion, the findings in this thesis indicate that the effect of extra government purchases with the aim of stimulating the economy is positive for key macroeconomic variables: gross domestic product, inflation, private consumption, wealth of households, wages and business investment. In addition, the findings also highlighted the weakness in the arguments against expansionary fiscal policy including the fact that much of the time, these arguments were motivated more by political economics rather that evidenced-based economic policy making. As a consequence, expansionary fiscal policy is an economic policy worth considering especially when one considers the low growth-low inflation (see (Stiglitz, 2016)) environment in many advanced economies including public concern about rising levels of poverty and inequality.
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