2012年-CEPS欧洲政策研究中心_Fiscal_Stabilisation_Plans_and_the_Outlook_for_the_World_Economy_59页_342kb

Summary of "Fiscal Stabilisation Plans and the Outlook for the World Economy"

Core Content

This working paper evaluates the effectiveness of counter-cyclical fiscal measures in the context of a global recession and financial crisis, focusing on the euro area and the United States. It examines the theoretical and empirical foundations of fiscal multipliers, the role of monetary policy in complementing fiscal stimulus, and the broader implications for global economic recovery.

Main Views

• Fiscal multipliers are central to understanding the potential impact of government spending and tax cuts on economic activity. In a closed economy, the government spending multiplier is $ \frac{1}{1 - c} $, where $ c $ is the marginal propensity to consume, while the tax multiplier is $ -\frac{c}{1 - c} $.
• In an open economy, the presence of tax rates and import propensity reduces the effectiveness of fiscal policy. The public spending multiplier becomes $ \frac{1}{1 - [c(1 - t) - m(1 - t)]} $, and the tax multiplier is $ \frac{-c + m}{1 - [c(1 - t) - m(1 - t)]} $, where $ t $ is the tax rate and $ m $ is the marginal propensity to consume from imports.
• Liquidity traps significantly limit the effectiveness of both monetary and fiscal policy. In such situations, monetary policy becomes ineffective because interest rates cannot fall below zero, and fiscal policy must be used more aggressively to stimulate demand.
• Fiscal stimulus is necessary but not sufficient for recovery. It must be combined with monetary easing and financial sector reforms to ensure a sustainable recovery.
• Empirical evidence from various models and data sources suggests that the fiscal stimulus packages in the euro area and the US have limited short-term impact and may not be enough to prevent a prolonged recession.

Key Information

Fiscal Multipliers in Different Models

• Closed economy:
  • Government spending multiplier: $ \frac{1}{1 - c} $
  • Tax multiplier: $ -\frac{c}{1 - c} $
• Open economy:
  • Public spending multiplier: $ \frac{1}{1 - [c(1 - t) - m(1 - t)]} $
  • Tax multiplier: $ \frac{-c + m}{1 - [c(1 - t) - m(1 - t)]} $

Fiscal Policy Effectiveness

• Fiscal stimulus can be more effective in low-growth liquidity traps due to the low shadow price of government spending.
• In the IS-LM framework, fiscal policy can shift the IS curve to the right, increasing output and interest rates.
• In a liquidity trap, monetary policy is ineffective, and fiscal policy becomes the primary tool for recovery.

Case Studies: Euro Area and US

• Euro Area:

  • Fiscal stimulus plans have limited impact, especially in the context of a liquidity trap.
  • The European Commission's Quest III model and IMF evaluations suggest that fiscal measures may not be sufficient to drive a strong recovery.
  • The paper highlights the importance of discretionary fiscal measures and automatic stabilisers in supporting economic activity.

• US:

  • The American Recovery and Reinvestment Act (ARRA) of 2009 aimed to stimulate the economy through a mix of government spending and tax cuts.
  • The CBO and IMF evaluations suggest that the initial impact of the ARRA was moderate, with tax cuts being less effective than government spending.
  • The fiscal multiplier for the US ranges between 0.5 and 1.5, depending on the model used.

Global Outlook

• The paper presents a model-based medium-term projection for the world economy, integrating the fiscal stabilisation plans of the US and the euro area.
• The baseline scenario indicates that without additional measures, the global economy may face a lengthy recession followed by a slow recovery.
• Uncertainties surrounding GDP growth, inflation, and the current account position remain, complicating the forecasting process.

Conclusion

While counter-cyclical fiscal measures can help limit the depth and duration of a global recession, they are not sufficient on their own to ensure a robust recovery. The paper argues that fiscal and monetary policies must be coordinated and supplemented by financial sector reforms to restore confidence and stimulate economic activity. In the context of a liquidity trap, fiscal stimulus becomes even more critical, though its effectiveness is reduced by the presence of taxes and imports.

The Japanese experience highlights the challenges of fiscal and monetary policy in a liquidity trap, showing that credible inflation targets and sustained fiscal expansion are necessary for recovery. The paper also suggests that exchange rate policies and quantitative easing can be effective tools in such situations.

In conclusion, the paper advocates for a comprehensive policy approach that combines fiscal stimulus, monetary easing, and financial sector reforms to restore economic growth and stability.