scholarly journals Theory vs. Practice: Does Fiscal Policy Crowd Out Business Investment during Crises?

2021 ◽  
Vol 10 (4) ◽  
Author(s):  
Sunwoo Yoo ◽  
Emma Campbell-Mohn
Keyword(s):  
Fiscal Policy ◽  
Crowding Out ◽  
Fiscal Policies ◽  
Business Investment ◽  
Fiscal Stimulus ◽  
The Great Recession ◽  
Case Comparison ◽  
Crowd Out ◽  
The 2008 Financial Crisis ◽  
Socio Economic Impact

In 2020, the South Korean government aimed to mitigate the socio-economic impact of the COVID-19 pandemic by enacting a fiscal stimulus package worth 66.8 trillion won. Traditional economic theory warns that such deficit-financed expansionary fiscal policies can have the adverse effect of crowding out business investment, but the current literature is more divided: some argue that the crowding-out effect outweighs the multiplier effect of fiscal stimulus; some claim that the two effects cancel each other out; and others assert that the scale of crowding out is small, at least in recessions. It is important to study the existence and scale of crowding out during recessions to evaluate the soundness of fiscal policies as a countercyclical tool. Thus, this paper examines whether Korea’s fiscal policy crowded out business investment during two severe economic downturns: the “great recession” of 2008 and the “great lockdown” of 2020. The paper uses a cross-time case comparison of the two economic crises in the hopes of drawing generalizable conclusions for South Korea over time. The findings show that Korea’s facility investment continued to increase during the recent pandemic but decreased during the 2008 financial crisis. Was this due to crowding out? Further analysis suggests that the decrease in investment during the 2008 crisis was due to factors other than crowding out. Hence, the paper concludes that Korea’s fiscal responses to the two crises did not crowd out business investment and thus encourages the continued use of appropriately sized and targeted fiscal stimulus during recessions.

scholarly journals Activist Fiscal Policy

2010 ◽  
Vol 24 (4) ◽  
pp. 141-164 ◽  
Author(s):  
Alan J Auerbach ◽  
William G Gale ◽  
Benjamin H Harris
Keyword(s):  
Fiscal Policy ◽  
Interest Rates ◽  
Great Recession ◽  
Economic Conditions ◽  
Fiscal Policies ◽  
The Great Recession ◽  
Policy Interventions ◽  
Low Interest Rates ◽  
The Many ◽  
Monetary And Fiscal Policy

During and after the “Great Recession” that began in December 2007 the U.S. federal government enacted several rounds of activist fiscal policy. In this paper, we review the recent evolution of thinking and evidence regarding the effectiveness of activist fiscal policy. Although fiscal interventions aimed at stimulating and stabilizing the economy have returned to common use, their efficacy remains controversial. We review the debate about the traditional types of fiscal policy interventions, such as broad-based tax cuts and spending increases, as well as more targeted policies. While there have been improvements in estimates of the effects of broad-based policies, much of what has been learned recently concerns how such multipliers might vary with respect to economic conditions, such as the credit market disruptions and very low interest rates that were central features of the Great Recession. The eclectic and innovative interventions by the Federal Reserve and other central banks during this period highlight the imprecise divisions between monetary and fiscal policy and the many channels through which fiscal policies can be implemented.

A Discussion on Fiscal Policies Implemented in EU During and After the Great Recession

2019 ◽  
pp. 143-159
Author(s):  
Gozde Es Polat ◽  
Onur Polat
Keyword(s):  
Fiscal Policy ◽  
Financial Crisis ◽  
Policy Implementation ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Fiscal Policies ◽  
The Great Recession ◽  
Eu Member States ◽  
The Global Financial Crisis ◽  
The Eu

Along with the global financial crisis that took place in 2008, the ineffectiveness of other policies used for exiting from the crisis has brought back the feasibility of fiscal policy as an alternative. It is accepted that the only way to overcome the severe shrinking of the total demand during the 2008 global financial crisis is expansionary fiscal policy applied globally. However, differences in the subjective conditions of the EU member countries in particular have not made it possible to implement an expansionary fiscal policy for all of the member countries. More developed EU countries have begun to carry out from expansionary fiscal policies, while the less developed ones have begun to conduct contractionary fiscal policies. With the awareness that the financial stability is a public good, the obstacles, challenges on the global fiscal policy implementation by the EU member states are discussed by examining fiscal policies performed during and after the 2008 global financial crisis.

scholarly journals The Impact of the Great Recession on Monetary and Fiscal Policy in Developed Market Economies

2015 ◽  
Vol 6 (1) ◽  
pp. 56-71 ◽  
Author(s):  
Damir Šehović
Keyword(s):  
Fiscal Policy ◽  
Great Recession ◽  
Fiscal Policies ◽  
Market Economies ◽  
The Great Recession ◽  
The Great Depression ◽  
Theoretical Assumptions ◽  
Monetary And Fiscal Policy ◽  
The Impact

Abstract Background: With the occurrence of the crisis in 2007, which caused the largest economic contraction since the Great Depression in the thirties, it has become evident that the previous understanding of strategies, effects and roles of monetary and fiscal policy should be redefined. Objectives: The aim of this paper is to illustrate a possible expected change in monetary and fiscal policy in developed market economies that could occur as a consequence of the Great Recession. Methods/Approach: The paper provides a comparative analysis of various primary economic variables related to the developed OECD countries, as well as the empirical testing of the selected theoretical assumptions. Results: The changes in monetary policy refer to the question of raising target inflation, considering a possible use of aggregate price level targeting and paying attention to the role of central banks in suppressing the formation of an asset bubble. The success of fiscal policy in attaining stabilization depends on the size of possible fiscal measures and creation of automatic stabilizers. Conclusions: For the most part, monetary and fiscal policies will still stay unchanged, although some segments of these policies need to be improved.

scholarly journals Demand effects of fiscal policy since 2008

2019 ◽  
Vol 7 (1) ◽  
pp. 57-74 ◽  
Author(s):  
Engelbert Stockhammer ◽  
Walid Qazizada ◽  
Sebastian Gechert
Keyword(s):  
Fiscal Policy ◽  
Fiscal Policies ◽  
Fiscal Multipliers ◽  
The Great Recession ◽  
The Usa ◽  
Demand Effects ◽  
The Uk ◽  
Open Question ◽  
The Impact

The Great Recession of 2007–2009 has led to controversies about the role of fiscal policy. Academically this has translated into renewed interest in the effects of fiscal policy. Several studies have since suggested that fiscal multipliers are substantially larger in downswings or depressions than in upswings. In terms of economic policy reactions, countries have differed substantially in their fiscal stance. It is an important open question how big the impact of these policies on economic growth has been. The paper uses the regime-dependent multiplier estimates by Qazizada and Stockhammer (2015) and by Gechert and Rannenberg (2014) to calculate the demand effects of fiscal policy for Germany, the USA, the UK, Greece, Ireland, Italy, Portugal and Spain since 2008. This allows us to assess to what extent fiscal policy explains different economic performances across countries. We find expansionary fiscal policy in 2008–2009 in all countries, but since 2010 fiscal policies have differed. While the fiscal effect was roughly neutral in Germany, the UK and the USA, it was large and negative in Greece, Ireland, Italy, Portugal and Spain.

Evaluation of Fiscal Policy Effect of China’s Photovoltaic Industry

2018 ◽  
pp. 111-116 ◽  
Author(s):  
Gang AN ◽  
Hang WANG
Keyword(s):  
Fiscal Policy ◽  
Research And Development ◽  
Operating Performance ◽  
Fiscal Policies ◽  
Micro Data ◽  
Policy Effect ◽  
Policy Suggestions ◽  
Asset Size ◽  
The Empirical Analysis

To explore the role of fiscal policies in promoting the development of photovoltaic industry, the effects of financial subsidies on the development of China’s photovoltaic industry were analyzed by using the micro data of listed companies. The empirical analysis results in this study indicate that the fiscal policies represented by financial subsidies play a remarkable positive impetus function and financial subsidies are positively correlated with the operating performance of Photovoltaic enterprises. With larger the asset size and higher the Research and Development (R&D) investments, the operating performance of Photovoltaic enterprises is the better. Based on the above results, this study puts forward some policy suggestions on optimizing fiscal policy tools and further promoting the development of photovoltaic industry.

Fiscal Stimulus, Fiscal Policies, and Financial Instability

2021 ◽  
Vol 55 (2) ◽  
pp. 552-558
Author(s):  
Alicia Girón ◽  
Eugenia Correa
Keyword(s):  
Financial Instability ◽  
Fiscal Policies ◽  
Fiscal Stimulus

scholarly journals Relative Effectiveness of Monetary and Fiscal Policies on Output Stabilization in Developing Countries: Evidence from Rwanda

2017 ◽  
Vol 10 (1) ◽  
pp. 220
Author(s):  
Kabanda Richard ◽  
Peter W. Muriu ◽  
Benjamin Maturu
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Relative Effectiveness ◽  
Variance Decomposition ◽  
Var Model ◽  
Fiscal Policies ◽  
Impulse Responses ◽  
Exogenous Variables ◽  
Output Stabilization ◽  
The Government

The aim of this study was to explain the relative effectiveness of monetary and fiscal policies in explaining output in Rwanda. The study used a sample of quarterly data for the period 1996-2014. Applying a recursive VAR, the study used 12 variables, including 5 endogenous and 7exogenous variables to the benchmark model and other two specifications were attempted to capture the true contribution of monetary and fiscal policies to variations in nominal output. Obtained results using impulse responses and variance decomposition provide evidence that monetary policy is more effective than fiscal policy in explaining changes in nominal output in Rwanda. In addition, monetary policy explains better output when the VAR model contains domestic exogenous variables than when they are not included, suggesting the relevance of including domestic exogenous variables in VAR specification of monetary and fiscal policies effectiveness on economic variables. Another suggestion is that in order to achieve higher growth, the government of Rwanda should rely more on monetary policy as compared to fiscal policy.

Monetary Integration, Fiscal Divergence and Current Account Imbalances in Europe

2018 ◽  
Vol 15 (1) ◽  
Author(s):  
Gunther Schnabl
Keyword(s):  
Fiscal Policy ◽  
Monetary Union ◽  
Current Account ◽  
European Monetary Union ◽  
Exchange Rate Regime ◽  
Early Years ◽  
Monetary Integration ◽  
Fiscal Policies ◽  
European Monetary ◽  
Panel Regressions

Abstract The paper scrutinizes the role of diverging fiscal policy stances for diverging current account positions in Europe with a focus on the European Monetary Union (EMU). In a heterogeneous monetary union fiscal policy has the task to absorb asymmetric shocks to ensure the efficacy of the one-size monetary policy. It is argued that since the early years of the European Monetary Union divergent fiscal policies combined with monetary expansion constituted a major determinant of current account divergence within the euro area, which finally led into the European debt and financial crisis. Panel regressions reveal a significant impact of fiscal policies on current account positions, which to a large extent are independent from the exchange rate regime and turn out to be contingent on monetary and fiscal policy mix. Based on the findings economic policy recommendations are presented.

scholarly journals Economic Growth, Policies and Influencing Factors: The Case of Albania

2016 ◽  
Vol 4 (1) ◽  
pp. 107
Author(s):  
Eleni Vangjeli ◽  
Anila Mancka
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Fiscal Policy ◽  
Interest Rates ◽  
Empirical Analysis ◽  
Influencing Factors ◽  
Fiscal Policies ◽  
The Government ◽  
High Level ◽  
The Empirical Analysis

Monetary and fiscal policies are two policies that the government could use to keep a high level of growth, with a low inflancion. Fiscal policy has its initial impact on the stock market, while monetary policy in market assets. But, given that the goods and active markets are closely interrelated, both policies, monetary as well as fiscal have impact on the economy, increasing the level of product through the reduction of interest rates. In our paper we will show how functioning monetary and fiscal policies. But also in our paper we will analyze the different factors which have affected the economic growth of the country. The focus of our study is the graphical and empirical analysis of economic growth, policies and influencing factors. For the empirical analysis we have used data on the economic growth in Albania for 1996– 2014.

scholarly journals Social Investment in an Age of Austerity: A Comparison of Family Policy Reforms in Four European Countries

2020 ◽  
Vol 27 (3) ◽  
pp. 249-267
Author(s):  
Sonja Blum ◽  
Tatjana Rakar ◽  
Karin Wall
Keyword(s):  
Social Protection ◽  
Family Policy ◽  
Parental Leave ◽  
European Countries ◽  
Crowding Out ◽  
Social Investment ◽  
Policy Reforms ◽  
The Great Recession ◽  
The Social ◽  
Post War

The focus of this article is on family policy reforms in four European countries – Austria, Finland, Portugal, and Slovenia – between 2008 and 2015. These years were marked by the ‘Great Recession’, and by the rise of the social-investment perspective. Social investment is an umbrella concept, though, and it is also somewhat ambiguous. This article distinguishes between different social-investment variants, which emerge from a focus on its interaction with alternative social-policy perspectives, namely social protection and austerity. We identify different variants along the degree of social-investment: from comprehensive, over crowding out, towards lean forms. While the empirical analysis highlights variation, it also shows how there is a specific crisis context, which may lead to ‘crowding out’ of other policy approaches and ‘leaner’ forms of social investment. This has led to strong cutbacks in family cash benefits, while public childcare and parental leaves have proved more resilient in the investigated countries. Those findings are revelatory in the current Covid-19 pandemic, where countries are entering a next, possibly larger economic crisis. Key words: family policy; crisis; social investment; austerity; case studies denoted as the end of the ‘golden age’ of the welfare state, putting a halt to its expansion in post-war prosperity. Faced with low growth rates and rising unemployment, the recipe chosen by many countries was to ‘relieve’ labour markets. Alongside such measures as early retirement schemes, family policy was a key part of the reform programme and recourse to parental leave

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