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Fiscal policy and the global financial crisis

  • Torben M. Andersen


    (School of Economics and Management, University of Aarhus, Denmark)

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    The financial crisis raises demands for fiscal policy interventions. While a fall in aggregate demand is an important consequence of the crisis, it also reflects more underlying structural problems and changes. Hence, appropriate policy designs have to take account of the nature of the crisis and the underlying need for structural changes. While fiscal policy should mainly rely on automatic stabilizers in normal situations, a more active fiscal policy strategy is called for in the present situation. The effectiveness of various types of fiscal instruments and conceivable tensions between short and long-run objectives are discussed. Past experience shows that deep recessions become persistent due to marginalization of unemployed, and therefore labour market policies have to be considered as an integral part of policy packages. Finally the question of international policy coordination is addressed.

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    Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2009-07.

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    Length: 36
    Date of creation: 03 Jun 2009
    Date of revision:
    Handle: RePEc:aah:aarhec:2009-07
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