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A Bottom-Up Approach to Fiscal Policy
Pavlina Tcherneva, assistant professor of economics
Pavlina Tcherneva, assistant professor of economics at Franklin & Marshall College, has received a grant from the Institute for New Economic Thinking (INET) to explore U.S. fiscal policy and provide fresh, new perspectives on government stabilization programs.
Tcherneva’s project, titled “Reorienting Fiscal Policy: A Bottom-Up Approach,” was one of only 23 selected for funding by the institute’s governing board from a pool of more than 400 proposals. The yearlong project will offer a theoretical and empirical reassessment of alternative fiscal policy actions, culminating in a policy proposal that brings together the objectives of full employment, better income distribution and adequate provisioning of public goods.
“I’m excited to be part of a community of scholars who come from all corners of the discipline of economics,” says Tcherneva, who is on junior faculty leave this academic year. “The institute has already made an impact on the conversation in our field.”
The projects selected for INET grant funding offer a range of approaches and perspectives that address issues often neglected by conventional economic analysis. In her project, Tcherneva will use evidence from the current downturn and other key policy episodes to draw conclusions about the objectives and effectiveness of government stabilization efforts.
“We’ve been practicing fiscal policy the same way for decades, and it hasn’t created anything close to full employment or done much to improve the income distribution in the economy,” Tcherneva says. “My work aims to clarify these flaws, and makes the case for a fundamental reorientation of fiscal policy.”
Tcherneva is working on journal articles, policy pieces and other publications—including a book—during her sabbatical. She will attend a series of events, exchanges and conferences to share ideas with other INET scholars and key figures in her field.
"Fiscal policy doesn't seem to deliver robust economic results through its trickle-down approach," Tcherneva says. "It either cuts top marginal income tax rates and worsens the income distribution, or it keeps priming the pump, which prevents the bottom from falling out, but does not wipe out unemployment. The conventional thinking is that we should target growth by whatever means possible and that the fall in the unemployment rate will be a byproduct of these pro-growth policies.
"My work argues that job creation needs to be policy priority No. 1—either via a job guarantee or some type of public service employment—and growth becomes a consequence of a pro-employment policy that delivers shared prosperity. In this sense it is a bottom-up approach that first closes the demand gap for labor."
Earlier this week, Tcherneva provided fiscal policy analysis on Wisconsin Public Radio. Click here to listen to the interview (go to “October 17” and scroll to the 4 p.m. show, “At Issue with Ben Merens”).
To read more about Tcherneva and her work, read a previous feature in The Diplomat.