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Fiscal policy in the post-financial crisis era: debates and lessons learned

Updated Monday, 19 December 2022

After the global financial crisis, fierce debates over the role of fiscal policy broke out among economists, policymakers and the public at large. Are lessons learned for when the next crisis arrives? Did the legacy of the devastating impact of austerity affect the rationale of fiscal policy response after the pandemic? 

This content is associated with The Open University's Economics courses and qualifications.

On 25 May 2022, OU Economics hosted a seminar with Dr Ayobami Ilori, Lecturer and Staff Tutor at The Open University and Dr Moustafa Chatzouz, a macroeconomist, who leads the data science and fiscal policy modelling branch at HM Treasury.  


Watch the trailer below for the seminar, Fiscal policy in the post-financial crisis era: debates and lessons learned.

PDF document Transcript 14.7 KB

Learning outcomes

After exploring the seminar material, you will be able to identify key trends in public finances after the global financial crisis and the pandemic as well as understand different perspectives on the role of fiscal policy. 

Fiscal responses after the global financial crisis and pandemic

In this video Dr Ilori examines the different impacts that fiscal policy responses had on key macroeconomic variables after the global financial crisis and the pandemic. Austerity policies after the global financial crisis left a lasting negative impact on the trajectory of important economic variables. Dr Ilori argues that expansionary fiscal policies following the pandemic-shock are an indication of the lessons learned from the global financial crisis – that contractionary fiscal policy makes the downturn worse.

PDF document Transcript 29.2 KB

Structural problems of fiscal policy have not been resolved

Frequent and popular explanations of the global financial crisis came down to the irrational behaviour of market participants, or their ‘greedy’ mentality. In the video below, Dr Chatzouz explores deeper and structural causes of the financial crisis. He discusses problems of fiscal policy from the perspective of the loanable funds model. In his view, despite a more positive role of fiscal policy after the Covid-19 pandemic, the underlying view towards public finances has not fundamentally changed. Instead, the world has witnessed a widening of wealth and income inequalities.  

Transcript (PDF document28.2 KB)

Further learning materials

Arestis, P. and Sawyer, M. (2014) Fiscal and Debt Policies for the Future, Springer Link, available here:  

Ilori, A., Paez-Farrell J., and Thoenissen, C., 2021, Fiscal policy shocks and international spillovers, European Economic Review, Volume 141, January 2022.

Ilori, A., (2020) Fiscal Policy and Financial Constraints: An Estimated DSGE Model of the UK Economy.

Obst, T., Onaran., Ö, Nikolaidi, M. 2020, ‘The effects of income distribution and fiscal policy on aggregate demand, investment and the budget balance: the case of Europe’, Cambridge Journal of Economics, Volume 44, Issue 6, November 2020, Pages 1221–1243,  

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The OU Economics Seminar Series promotes high-quality research bringing together academics to exchange, share and engage in dialogue with policymakers, practitioners, industry representatives and members of the public. With an ethos of inclusivity and respect for diverse realms of economic expertise, the seminar series will bring together those working on current challenges across a broad range of research interests: Social Policy, Personal Finance, Innovation, Macroeconomics, Development Economics, Health, Inequality and Employment, Philosophy and History of Economics.


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