Indeed, just a year or two ago, expansionary fiscal contraction was all the rage, and a massive research effort went into proving its existence.

Fiscal contraction is contractionary, period.

So early fiscal consolidation can be expansionary on balance.

Europe is mired in its oxymoronic commitment to expansionary fiscal austerity.

In contrast, QE3 will be associated with a fiscal contraction, possibly even a large fiscal cliff.

But Keynesianism involved continued fiscal expansion, with no offsetting monetary contraction.

Additionally, raising interest rates would be a form of expansionary fiscal policy.

Forecasters assumed that monetary expansion would provide an effective antidote to fiscal contraction.

Moreover, the critics object, the evidence in support of expansionary fiscal consolidations is flawed.

Its fiscal policy has been expansionary, but nowhere near the level of the US.

In each case where fiscal consolidation supposedly was expansionary, the economy grew because of some third factor.

Moreover, Brazilian fiscal policy is likely to switch from restrictive to neutral or slightly expansionary this year.

At the same time, it spares an already weak economy damaging fiscal contraction in the short run.

Although the new tax law is generally described as a fiscal stimulus, it is more accurate to say that it avoids a large immediate fiscal contraction.

Expansionary monetary policy is expected to inject liquidity into the Japanese economy until inflation hits the Bank of Japan s 2 target, while expansionary fiscal policy is expected to continue until economic recovery takes hold.

To offset the negative impact of private sector deleveraging on growth, the US government has maintained expansionary fiscal and monetary policies.

In particular, expansionary monetary and fiscal policies which are helpful in the short term must be accompanied by fundamental structural reforms.

The early 2012 upturn in US economic activity still owes a lot to extraordinarily expansionary monetary policy and unsustainable fiscal deficits.

It misjudged the consequences of fiscal consolidation and credit constraints, underestimating the contraction of employment and overestimating exports and privatization receipts.

Some will say that he should get G 20 countries to coordinate an orderly exit from their expansionary monetary and fiscal policies.

Indeed, this was the trap faced by Argentina in 1998 2001, when needed fiscal contraction exacerbated recession and eventually led to default.

Given synchronized fiscal retrenchment in most advanced economies, another year of mediocre growth could give way to outright contraction in some countries.

With the government still having room to wield expansionary monetary and or fiscal policy, the economic revival was only a matter of time.

Even if this does not trigger a crisis, it sharply narrows the government s scope for using expansionary fiscal policy to stimulate the economy.

The prospect of a disorderly fiscal contraction needs to give way to a more rationally designed approach that avoids undermining the fragile recovery.

Some argue that fiscal consolidation by gradual permanent reductions in spending would be expansionary for high debt countries, as occurred in some historical episodes.

That, plus the gloomy international outlook and a fiscal policy that will have to become less expansionary after the election, will slow the economy down.

On paper, at least, this sizeable threat involving blunt fiscal contraction amounting to some 4 of GDP should have properly aligned incentives in Washington, DC.

Premature fiscal contraction and or withdrawal of countercyclical measures threaten the public support that is essential to promoting recovery among those hardest hit by the crisis.

Countries with a stronger fiscal position (that is, smaller structural deficits) should be encouraged to adopt more expansionary policies in order to contribute to lifting overall demand.

Meanwhile, India, constrained by a high fiscal deficit and persistent inflationary pressure, has less scope for expansionary policies and faces significant challenges in pursuing credible structural reform.

China s Inscrutable Contraction

First, front loaded fiscal austerity however necessary is accelerating the contraction, as higher taxes and lower government spending and transfer payments reduce disposable income and aggregate demand.

BEIJING China s Central Economic Work Meeting, comprising top government decision makers, recently chose to continue the expansionary fiscal and monetary policy launched in the last quarter of 2008.

Other factors included defective financial regulations, expansionary fiscal policies in countries like the United States, Britain, and Ireland, a lack of appropriate macro prudential regulations, and so on.

That policy, almost instantly dubbed Abenomics, comprises what have been called the three arrows bold monetary policy, an expansionary fiscal stance, and structural reforms to stimulate private investment.

The Second Great Contraction

Of course, no real world policy falls cleanly into any one of these ideal types. Right now, the European Central Bank worries that continued expansionary fiscal policy will backfire.

The love has been very tough indeed, generating rapid economic contraction, massive unemployment (upwards of 50 among young people), and continued fiscal deterioration, owing to rising debt service costs.

The worry is that, at least in some cases, the IMF will go back to its old failed recipes fiscal and monetary contraction, which would only increase global inequities.

Unfortunately, its main impact at this point is to distract attention from measures that would truly stimulate growth, including an expansionary fiscal policy and financial sector reforms that boost lending.

After the global financial crisis erupted in the last quarter of 2008, interest rates in Brazil fell sharply, credit expanded quickly, and fiscal policy shifted from neutral to strongly expansionary.

It is almost as if governments like Britain s are attempting to manipulate the private sector into believing that the dire conditions required for an expansionary fiscal consolidation have already been met.

Second, the troika based its programs on overly optimistic assumptions. It misjudged the consequences of fiscal consolidation and credit constraints, underestimating the contraction of employment and overestimating exports and privatization receipts.

The United States economy is currently growing at 1.5 per year (about a full percentage point less than potential), and growth may slow, owing to a small fiscal contraction this year.