In spite of ample empirical evidence to low taxation levels and sound public finance as the necessary conditions for long-term growth, economists disagree as to the short-run effects of fiscal impulses. Growth rates in EU countries, notwithstanding the improvement in public finances, have remained rather low over the past decade. This has provided new arguments for the Keynesians. At the same time, the experience of many economies shows that a fiscal impulse may cause effects directly opposite to those envisaged by the Keynesian model.

The first part of the paper describes the effects of a fiscal policy tightening in the light of economic theory. In particular, the author discusses the impact on private consumption, domestic demand and the real product. This is done first within the Keynesian and then the neoclassical framework. Next the paper considers the effects of temporary restrictions on public spending in the light of the real business theory.

The second part presents the findings of selected empirical research on non-Keynesian effects of a fiscal tightening.