From Goldman Sachs research, this is Alison Nathan.

Welcome to Top of Mind, a podcast that explores macroeconomic issues on the minds of our clients.

In this episode, we explore whether governments should be doing more to boost the economy

by either directly spending more money in the economy, for example, by funding public infrastructure,

or by cutting taxes so that people or companies have more money to spend themselves.

The counterpart to these types of fiscal policies conducted by governments is monetary

policy conducted by central banks.

This is typically the first line of defense when economic growth slows because central banks

can quickly react by lowering interest rates and taking other measures that work to boost

activity.

But the problem today is that monetary policy is nearly exhausted in most major economies,

with interest rates very low globally, despite the fact that growth and inflation remain disappointing.

So there are now growing calls for fiscal policy to play a bigger role to support growth, especially in Europe.

Here's Mario Draghi, the former president of the European Central Bank,

during his farewell remarks in October.

Today we are in a situation where low interest rates are not delivering the same degree of stimulus as in the past,

because the rate of return on investment in the economy

has fallen. Monetary policy can still achieve its objective, but it can do so faster and with

fewer side effects if fiscal policies are aligned with it. This call for fiscal expansion might seem like a no-brainer.

But the downside is that if governments spend more money or taken less revenue by cutting taxes,

they're likely going to end up running a budget deficit, and especially if the deficit is large,

could end up with high debt levels.

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