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Post-crisis Fiscal Policy$
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Carlo Cottarelli, Philip Gerson, and Abdelhak Senhadji

Print publication date: 2014

Print ISBN-13: 9780262027182

Published to MIT Press Scholarship Online: September 2015

DOI: 10.7551/mitpress/9780262027182.001.0001

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Fiscal Policy Response in Advanced and Emerging Market Economies

Fiscal Policy Response in Advanced and Emerging Market Economies

Chapter:
(p.255) 10 Fiscal Policy Response in Advanced and Emerging Market Economies
Source:
Post-crisis Fiscal Policy
Author(s):

Elif Arbatli

Thomas Baunsgaard

Alejandro Guerson

Kyung-Seol Min

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262027182.003.0011

This chapter examines how countries employed activist fiscal policies in response to the sharp decline in global growth following the financial crisis of 2007. In particular, it provides an in-depth analysis of the timing, size, and composition of fiscal stimulus packages in advanced and emerging market economies as well as the issues related to their implementation. It first summarizes some of the empirical evidence on whether an expansionary fiscal policy response was appropriate. It then shows that public debts increased dramatically from 2008 to 2010, especially in advanced economies. The substantial rise in fiscal deficits and debt ratios was not caused primarily by the fiscal stimulus, but by a decline in government revenues and, to a lesser extent, government support to the financial sector. Although fiscal stimulus packages varied across countries, these differences were generally consistent with each country's economic fundamentals, including available fiscal space, the severity of the downturn in domestic economic activity, the ability and space to use monetary policy, and the degree of trade openness that dilutes the effect of fiscal stimuli on the domestic economy.

Keywords:   fiscal policy, financial crisis, fiscal stimulus, emerging market economies, public debt, advanced economies, fiscal deficits, debt ratio, government revenues, monetary policy

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