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Net Fiscal Stimulus During The Great Recession

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  • Aizenman, Joshua
  • Pasricha, Gurnain Kaur

Abstract

This paper studies the patterns of fiscal stimuli in the OECD countries propagated by the global crisis.Overall, we find that the USA net fiscal stimulus was modest relative to peers, despite it being theepicenter of the crisis, and having access to relatively cheap funding of its twin deficits. The USAis ranked at the bottom third in terms of the rate of expansion of the consolidated government consumptionand investment of the 28 countries in sample. Contrary to historical experience, emerging marketshad strongly countercyclical policy during the period immediately preceding the Great Recession andthe Great Recession. Many developed OECD countries had procyclical fiscal policy stance in the sameperiods. Federal unions, emerging markets and countries with very high GDP growth during the pre-recessionperiod saw larger net fiscal stimulus on average than their counterparts. We also find that greater netfiscal stimulus was associated with lower flow costs of general government debt in the same or subsequentperiod.

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Bibliographic Info

Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt8df5z6j8.

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Date of creation: 01 Feb 2011
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Handle: RePEc:cdl:ucscec:qt8df5z6j8

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Keywords: Social and Behavioral Sciences;

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References

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  1. Ethan Ilzetzki & Enrique G. Mendoza & Carlos A. Végh Gramont, 2011. "How Big (Small?) Are Fiscal Multipliers?," IMF Working Papers 11/52, International Monetary Fund.
  2. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
  3. Aizenman, Joshua & Pasricha, Gurnain Kaur, 2010. "Fiscal fragility: what the past may say about the future," Santa Cruz Department of Economics, Working Paper Series qt7mf244m2, Department of Economics, UC Santa Cruz.
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Cited by:
  1. C. Randall Henning & Martin Kessler, 2012. "Fiscal federalism: US history for architects of Europe's fiscal union," Essays and Lectures 669, Bruegel.
  2. Jiri Jonas, 2012. "Great Recession and Fiscal Squeeze at U.S. Subnational Government Level," IMF Working Papers 12/184, International Monetary Fund.

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