Yothin Jinjarak, Joshua Aizenman, 30 September 2011

In the immediate fallout from the global crisis, governments around the world responded by spending big. Yet despite the talk of international coordination, this wasn’t the case in all countries. This column explores why. It finds that trade openness, fiscal space, and exchange-rate policy played a pivotal role.

Roger Farmer, Dmitry Plotnikov, 05 September 2011

Can government spending help the economy recover from a recession by boosting job creation and lowering unemployment? Or is it a waste of money? This column addresses this question and others using a unique framework. It explains why fiscal policy was effective at ending the Great Depression but it argues that a big fiscal expansion may not be the best solution this time round.

John Muellbauer, Keiko Murata, 21 August 2011

The global crisis of 2008-2009 has refocused attention on the lessons of Japan’s lost decade, with many suggesting that Europe and the US are heading the same direction. This makes a thorough understanding of the Japanese case an urgent matter. But this column argues that pushing the analogies too far is a mistake that could prolong the economic pain.

Thorsten Drautzburg, Harald Uhlig, 31 July 2011

The debt crises in the Eurozone and the US are reminders that all government expenditures must eventually be financed by tax revenues. This column analyses the effect of the US fiscal stimulus programme and argues that abstracting from financing decisions presents a skewed version of the net benefits to society.

Hyunseung Oh, Ricardo Reis, 04 May 2011

Government spending and its effect on the economy is a perpetual source of debate. This column argues that too much discussion has focused on government purchases, when the fiscal expansion from 2007 to 2009 was all about transfers. It suggests that fiscal spending on transfers can boost the economy in a recession, though only if the transfer moves resources between the right groups.

Giancarlo Corsetti, Saverio Simonelli, Antonio Acconcia, 04 April 2011

Few things divide the economics profession more than this question: How much economic activity does $1 of government spending generate? This column provides a new angle. Looking at local councils in Italy between 1990 and 1999, it examines variation in budgets due to the removal of funds by central government if mafia involvement is suspected. It finds that the fiscal multiplier starts at 1.4 and rises to 2.0.

John Van Reenen, 07 March 2011

The recent announcement that Pfizer will close its main UK research lab (where Viagra was created) is the latest bit of bad news to bite the British economy. This column argues that the UK government’s austerity programme is only making growth prospects worse. Instead of Plan B, it says that the government needs the economic equivalent of Pfizer’s little blue pill – a “Plan V”.

Richard Wood, 03 March 2011

The US, Japan, and Ireland are threatened by the spectres of deficient private demand, rising debt, and a tendency to deflation. This column questions current monetary policy directions, i.e. quantitative easing, and argues that printing money to directly finance fiscal stimulus may be a better option.

Joshua Aizenman, Yothin Jinjarak, 04 December 2010

What factors determined the fiscal expansion seen in many developed countries in 2009? This column finds that greater de facto fiscal space prior to the global crisis, higher GDP per capita, more financial exposure to the US, and lower trade openness were all associated with a larger fiscal stimulus relative to GDP and that more open economies may have relied more on exchange-rate depreciation.

Nicholas Crafts, Peter Fearon, 23 November 2010

The global crisis has been frequently compared to the Great Depression. The recession of 1937 has been less widely discussed. This column asks what lessons it can teach today’s policymakers. Its key message is that while fiscal consolidation should not be postponed, the exit strategy needs to focus on providing monetary support for aggregate demand as fiscal stimulus is withdrawn.

Alan Auerbach, Maurice Obstfeld, 23 October 2010

As the debate over China’s exchange-rate policy and the US response intensifies, this column argues that a large Chinese revaluation – whether forced of voluntary – will not be a free lunch for the US. Drawing on a theoretical cost-benefit analysis, it suggests that if the US wants to create jobs at the lowest costs, it should first consider further fiscal expansion.

Olivier Blanchard, 12 October 2010

A “strong, balanced, and sustained world recovery” as demanded by the G20 is a daunting challenge for policymakers. This column argues that two rebalancing acts are required: internal rebalancing – replacing government spending with private-sector demand, and external rebalancing – addressing the global imbalances between exporting and importing countries. These two rebalancing acts, it adds, are taking too long.

Mathias Dolls, Clemens Fuest, Andreas Peichl, 17 September 2010

While debate rages over the appropriate size and timing of fiscal expansions, this column points out that much less attention is devoted to role of the automatic stabilisers in the tax and transfer system. It compares these stabilisers in Europe and the US, finding that social transfers play a key role in the stabilisation of disposable incomes and consumer demand.

Robert Inman, 15 September 2010

What can we learn from US President Obama’s fiscal stimulus? This column argues that channelling the stimulus package through state governments exposed it to agency costs, free-riding problem, and political expediency. As a result, the stimulus has failed to meet its objectives at the state level. The lesson is that fiscal stimulus should be conducted centrally.

Alan Auerbach, Yuriy Gorodnichenko, 03 September 2010

The return from a fiscal stimulus – the fiscal multiplier – remains one of the most controversial topics in economics today. This column considers the influence of expectations, of variation in recessions and expansions, and of different components of government spending. It finds that the size of the multiplier varies considerably over the business cycle: between 0 and 0.5 in expansions and between 1 and 1.5 in recessions.

Guillermo Calvo, 04 August 2010

The debate over fiscal policy has reached a fork in the road. One way leads to maintaining or increasing the fiscal stimulus. This column argues that policymakers should take the other path. This would mean phasing out government expenditure while phasing in social protection programmes at the risk of a double-dip recession but potentially resulting in a more vibrant economy.

Francesco Giavazzi, 22 July 2010

The global macroeconomy is at a juncture; some economists argue for continued fiscal stimulus to avoid a double dip recession while others argue for fiscal prudence. In this column, one of the world's leading macroeconomists argues for continued stimulus combined with a plan to ensure long-run sustainability by reforming the funding of pension liabilities.

Ronald Mendoza, 09 June 2010

As the G20 changes its recommendations from fiscal stimulus towards fiscal austerity, this column argues that policymakers should be careful not to leave the most vulnerable behind. It says that robust social spending and investments are needed even under tight fiscal conditions – stock markets may bounce back, but a generation growing up in poverty may not.

Edward Barbier, 03 June 2010

Nearly one-sixth of the more than $3 trillion in fiscal stimulus spent in 2008 and 2009 was allocated to green spending. But this column argues that without correcting existing market and policy distortions, the “greening” of the world economy will be short-lived. Now more than ever, the world needs a global green New Deal – and it needs the G20 to lead the way.

Giancarlo Corsetti, André Meier, Gernot Müller, 05 February 2010

The staggering growth in public debt as a result of the financial crisis has led many to call for significant fiscal retrenchment. This column argues that such looming expenditure cuts will actually enhance the effectiveness of today’s fiscal stimulus. But if monetary policy is constrained by the zero lower bound on policy rates, the spending cuts should not come too early.



CEPR Policy Research