Moreover, in situations when the initial fiscal position of a country is unsatisfactory, as reflected not only in the budget deficit but also in the public debt-to-GDP ratio and the size of the unfunded future liabilities of the social security system, an expansionary fiscal policy and the concomitant widening of the deficit may not have a positive effect on economic activity, even in the short run.
In such situations,  1  See Robert Gordon “Two Centuries of Economic Growth: Europe Chasing the American Frontier” (http://faculty-web.at.northwestern.edu/economics/gordon/355.pdf) for comparisons of productivity growth rates and living standards between the European Union and the US.