Abstract

http://ssrn.com/abstract=1339442
 
 

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Fiscal Policy for the Crisis


Antonio Spilimbergo


International Monetary Fund (IMF) - Research Department; Centre for Economic Policy Research (CEPR); University of Michigan at Ann Arbor - The William Davidson Institute

Steven Symansky


International Monetary Fund (IMF) - Fiscal Affairs Department

Olivier J. Blanchard


Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER); International Monetary Fund (IMF)

Carlo Cottarelli


International Monetary Fund (IMF)

February 7, 2009


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.

Number of Pages in PDF File: 38

Keywords: fiscal policy, financial crisis, stimulus

JEL Classification: E61, E62, H00

working papers series


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Date posted: February 8, 2009  

Suggested Citation

Spilimbergo, Antonio and Symansky, Steven and Blanchard, Olivier J. and Cottarelli, Carlo, Fiscal Policy for the Crisis (February 7, 2009). Available at SSRN: http://ssrn.com/abstract=1339442 or http://dx.doi.org/10.2139/ssrn.1339442

Contact Information

Antonio Spilimbergo (Contact Author)
International Monetary Fund (IMF) - Research Department ( email )
700 19th Street NW
Washington, DC 20431
United States
202-623-6346 (Phone)
202-623-6336 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
University of Michigan at Ann Arbor - The William Davidson Institute ( email )
724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States
Steven Symansky
International Monetary Fund (IMF) - Fiscal Affairs Department ( email )
700 19th Street, NW
Washington, DC 20431
United States
Olivier J. Blanchard
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
Room E52-357
50 Memorial Drive
Cambridge, MA 02142
United States
617-253-8891 (Phone)
617-253-4096 (Fax)
HOME PAGE: http://mit.edu/blanchar/www/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
International Monetary Fund (IMF) ( email )
700 19th Street, N.W.
Washington, DC 20431
United States
202 623 7825 (Phone)
202 623 7271 (Fax)
Carlo Cottarelli
International Monetary Fund (IMF) ( email )
700 19th Street NW
Washington, DC 20431
United States
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