Fiscal Policy and the Global Financial Crisis

38 Pages Posted: 5 Jun 2009

See all articles by Torben M. Andersen

Torben M. Andersen

University of Aarhus - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Date Written: February 2009

Abstract

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.

Keywords: automatic stabilizers, discretionary policy, structural changes, labour market policy

JEL Classification: E3, E6, H2, H5

Suggested Citation

Andersen, Torben M., Fiscal Policy and the Global Financial Crisis (February 2009). Available at SSRN: https://ssrn.com/abstract=1414243 or http://dx.doi.org/10.2139/ssrn.1414243

Torben M. Andersen (Contact Author)

University of Aarhus - Department of Economics ( email )

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