24.06.2009

The Effectiveness of Fiscal Policies to Stimulate the Economy in a Crisis

Main event: Lectures "WIFO-Extern"
Persons: Walpurga Köhler-Töglhofer, Lukas Reiss
Language: Englisch
Österreichisches Institut für Wirtschaftsforschung
This paper discusses the effectiveness of discretionary fiscal policies in a crisis from a theoretical and empirical perspective. During "normal economic times" there are numerous arguments against applying discretionary fiscal policies as a means of stabilising the economy. However, in the current crisis many of these reasons (such as implementation delays or low multiplier effects) are of little importance. According to estimates by the Oesterreichische Nationalbank the measures which have been taken so far (the inflation package, stimulus packages I and II, the moving forward of income tax reform) have brought about a positive increase in growth of about ¾ percent of GDP and have had an effect on the labour market to the tune of 12,000 new jobs. Further effects can be expected in 2010. Since the rate of government debt in Austria, as in all other EU countries, is going to substantially increase as a result of measures to stimulate the economy, it is also important to recognise that after combating the crisis it will be necessary to reduce the deficit and debt ratios.