Fiscal Policy in a Financial Crisis: Standard Policy vs. Bank Rescue Measures

15 Pages Posted: 1 Mar 2012

See all articles by Robert Kollmann

Robert Kollmann

ECARES, Université Libre de Bruxelles; University of Paris XII - Department of Economics; Centre for Economic Policy Research (CEPR)

Werner Roeger

European Commission, DGECFIN

Jan In't Veld

affiliation not provided to SSRN

Date Written: February 2012

Abstract

A key dimension of fiscal policy during the financial crisis was massive government support for the banking system. The macroeconomic effects of that support have, so far, received little attention in the literature. This paper fills this gap, using a quantitative dynamic model with a banking sector. Our results suggest that state aid for banks may have a strong positive effect on real activity. Bank state aid multipliers are in the same range as conventional fiscal spending multipliers. Support for banks has a positive effect on investment, while a rise in government purchases crowds out investment.

Keywords: financial crisis, fiscal stimulus, real activity, state support for banks

JEL Classification: E62, E63, G21, G28, H25

Suggested Citation

Kollmann, Robert and Roeger, Werner and Veld, Jan In't, Fiscal Policy in a Financial Crisis: Standard Policy vs. Bank Rescue Measures (February 2012). CEPR Discussion Paper No. DP8829, Available at SSRN: https://ssrn.com/abstract=2013820

Robert Kollmann (Contact Author)

ECARES, Université Libre de Bruxelles ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium

University of Paris XII - Department of Economics ( email )

61 avenue du General de Gaulle
Creteil cedex, 94010
France

HOME PAGE: http://www.robertkollmann.com

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Werner Roeger

European Commission, DGECFIN ( email )

Economic and Financial Affairs
BU1-3/159, 200 Rue de la Loi
B-1049 Brussels
Belgium

Jan In't Veld

affiliation not provided to SSRN

No Address Available

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