This paper uses the term fiscal dominance as if its meaning is widely understood. It isn’t. Understanding monetary or fiscal dominance begins by appreciating that at the most fundamental level, monetary and fiscal policies must achieve the prime directive: determine and control the aggregate price level—and its rate of change, inflation—and stabilize the level of government indebtedness to ensure those policies are sustainable.
Without first accomplishing this directive, policies cannot achieve any of the myriad other tasks that societies demand: economic growth, high employment, financial stability, desirable income distribution, public safety, national defense, and so on. Though the directive seems prosaic, it is the core mission of monetary and fiscal policies.
