Fiscalism is a term sometimes used to refer the economic theory that the government should rely on fiscal policy as the main instrument of macroeconomic policy. Fiscalism in this sense is contrasted with monetarism, which is associated with reliance on monetary policy. Fiscalists reject monetarism in a non-convertible floating rate system as inefficient if not also ineffective. There are two types of fiscalism: (1) contained fiscalism, which does not allow the economy to grow or decline as much as possible; and elevated fiscalism, which does not allow the economy to decline but allows for the economy to grow unrestrained.
Roots
Fiscalism relies heavily on Keynesian theories, which states that an active government intervention is necessary to ensure economic growth and economic stability. For fiscalists, employment is of primary concern. Y (income) is the independent variable in PY = MV (where P = price level, M = amount of money, V = velocity/turnover of money), changes in which affect effective demand. So fiscalists hold that Y needs to be controlled through fiscal policy, which affects effective demand. Effective demand draws forth investment to meet profit opportunity, and effective demand is income-dependent, since consumption cannot be funded by drawing down savings, selling assets, or financed by borrowing (e.g. monetary debt) sustainably. If supply and demand are stabilized at optimal resource use, then unemployment is reduced.