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Net Fiscal Stimulus During the Great Recession

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  • Joshua Aizenman
  • Gurnain Kaur Pasricha

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 the epicenter of the crisis, and having access to relatively cheap funding of its twin deficits. The USA is ranked at the bottom third in terms of the rate of expansion of the consolidated government consumption and investment of the 28 countries in sample. Contrary to historical experience, emerging markets had strongly countercyclical policy during the period immediately preceding the Great Recession and the Great Recession. Many developed OECD countries had procyclical fiscal policy stance in the same periods. Federal unions, emerging markets and countries with very high GDP growth during the pre-recession period saw larger net fiscal stimulus on average than their counterparts. We also find that greater net fiscal stimulus was associated with lower flow costs of general government debt in the same or subsequent period.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16779.

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Date of creation: Feb 2011
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Publication status: published as “Net fiscal stimulus during the great recession,” (with G. K. Pasricha), Review of Development Economics, 2013, pp: 397–413.
Handle: RePEc:nbr:nberwo:16779

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  1. Ethan Ilzetzki & Enrique G. Mendoza & Carlos A. Végh, 2010. "How Big (Small?) are Fiscal Multipliers?," CEP Discussion Papers dp1016, Centre for Economic Performance, LSE.
  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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