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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.

Suggested Citation

  • Aizenman, Joshua & Pasricha, Gurnain Kaur, 2011. "Net Fiscal Stimulus During The Great Recession," Santa Cruz Department of Economics, Working Paper Series qt8df5z6j8, Department of Economics, UC Santa Cruz.
    • Handle: RePEc:cdl:ucscec:qt8df5z6j8
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    References listed on IDEAS

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    1. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82, National Bureau of Economic Research, Inc.
    2. Joshua Aizenman & Gurnain Kaur Pasricha, 2010. "Fiscal fragility: what the past may say about the future," NBER Working Papers 16478, National Bureau of Economic Research, Inc.
    3. Ilzetzki, Ethan & Mendoza, Enrique G. & Végh, Carlos A., 2013. "How big (small?) are fiscal multipliers?," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 239-254.
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    Cited by:

    1. John Schmitt, 2011. "Labor Market Policy in the Great Recession: Some Lessons from Denmark and Germany," CEPR Reports and Issue Briefs 2011-12, Center for Economic and Policy Research (CEPR).
    2. Andrzej Wojtyna, 2011. "Standardowe i niestandardowe działania antykryzysowe w gospodarkach wschodzących," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 9, pages 1-21.
    3. Jiri Jonas, 2012. "Great Recession and Fiscal Squeeze at U.S. Subnational Government Level," IMF Working Papers 2012/184, International Monetary Fund.
    4. C. Randall HENNING & Martin KESSLER, 2012. "Fiscal Federalism: US History for Architects of Europe’s Fiscal Union," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 1-31.

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    More about this item

    Keywords

    Social and Behavioral Sciences;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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