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Fiscal Policy For The Crisis

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  • Antonio Spilimbergo
  • Steve Symansky
  • Olivier Blanchard
  • Carlo Cottarelli

Abstract

The current crisis calls for two main sets of policy measures. First, measures to repair the financial system. Second, measures to increase demand and restore confidence. While some of these measures overlap, the focus of this note is on the second set of policies, and more specifically, given the limited room for monetary policy, on fiscal policy. The optimal fiscal package should be timely, large, lasting, diversified, contingent, collective, and sustainable: timely, because the need for action is immediate; large, because the current and expected decrease in private demand is exceptionally large; lasting because the downturn will last for some time; diversified because of the unusual degree of uncertainty associated with any single measure; contingent, because the need to reduce the perceived probability of another “Great Depression” requires a commitment to do more, if needed; collective, since each country that has fiscal space should contribute; and sustainable, so as not to lead to a debt explosion and adverse reactions of financial markets. Looking at the content of the fiscal package, in the current circumstances, spending increases, and targeted tax cuts and transfers, are likely to have the highest multipliers. General tax cuts or subsidies, either for consumers or for firms, are likely to have lower multipliers.

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Bibliographic Info

Article provided by Ifo Institute for Economic Research at the University of Munich in its journal CESifo Forum.

Volume (Year): 10 (2009)
Issue (Month): 2 (07)
Pages: 26-32

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Handle: RePEc:ces:ifofor:v:10:y:2009:i:2:p:26-32

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Related research

Keywords: Finanzmarktkrise; Geldpolitik; Finanzpolitik; Steuersenkung; Subvention; Vertrauen; Welt;

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References

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  1. Nicholas S. Souleles & Jonathan A. Parker & David S. Johnson, 2006. "Household Expenditure and the Income Tax Rebates of 2001," American Economic Review, American Economic Association, vol. 96(5), pages 1589-1610, December.
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  1. Las raíces políticas de la crisis del Euro
    by Cives in Politikon on 2012-05-22 11:48:47
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