National fiscal policy responses to the Great Recession
Many nations of the world have enacted fiscal stimulus plans in response to the global, on going recession. These nations have used different combinations of government spending and tax cuts to boost their sagging economies. Most of these plans are based on the Keynesian theory that deficit spending by governments can replace some of the demand lost during a recession and prevent the waste of economic resources idled by a lack of demand. The International Monetary Fund has recommended that countries implement fiscal stimulus measures equal to 2% of their GDP to help offset the global contraction.[1]
Americas
United States
In 2008 the US Congress passed--and then-President Bush signed--a $152 million stimulus bill designed to help stave off a recession. The bill primarily consisted of $600 tax rebates to low and middle income Americans.
The United States combined many stimulus measures into the American Recovery and Reinvestment Act of 2009, $787 billion bill covering a variety of expenditures from tax cuts to infrastructure investment. $184.9 billion will be spent in 2009, and $399.4 billion will be spent in 2010 with the remainder of the bill's appropriations spread over the rest of the decade.[2]
Asia
China
The Chinese State Council approved a $586 billion stimulus package in November 2008.[3]
Japan
In April 2009 Japan announced a third stimulus plan of 15.4 trillion yen stimulus ($153 billion). This new plan includes 1.6 trillion yen investment in low-carbon technology, 1.9 trillion yen on employment programs, and 370 billion yen for new car subsidies.[4]The legislature responded to a request from Prime Minister Taro Aso for a stimulus that equal to 2% of GDP. Japan has been one of the hardest hit nations during the recession and already experienced a lost decade when economic growth stagnated. [5] Japan's total stimulus amounts to 5% of its GDP.[6] Since taking office, Prime Minister Aso has passed 25 trillion yen ($250bn) in stimulus.[7] Japan has basically exhausted its conventional monetary policy options with a near zero nominal interest rate.[8]
South Korea
South Korea 14 trillion won ($10.8bn) stimulus package in November 2008. The November package includes 4.6 trillion won for regional infrastructure and 3 trillion won in tax break--mainly for factory investment. South Korea's stimulus totaled [9]
In April 2009 South Korea enacted a "cash for clunkers" program that will give a tax break of 2.5 million won ($1,900) to drivers who replace a car nine-years or older with with a new car.[10] The tax break will be in effect from May to December 2009 and is estimated to boost Hyundia sales from 530,000 to 580,000 and Kia sales from 327,000 to 357,000.[11]
South Korea's 2009 budget includes $13bn in employment stimulus including handouts, training, and infrastructure. South Korea's total stimulus in 2008-2009 amounts to about $69 trillion won ($52bn).[12]
Europe
European Union
The European Union passed a 200 billion euro plan with member countries developing their own national plans, worth 170bn to 200bn euro in total, and an EU-wide plan of 30bn euro coming from EU funding.[13] The European Commission recommends that member nations' stimulus plans amount to at least 1.2% of GDP.
Germany
Compared to other European nations, Germany is in a unique position: It has relatively low debt, a high balance of trade, and an export driven economy. The recession has led to a decline in German exports, but Germany has the capacity to replace some of the export demand with domestic stimulus.[14] The German stimulus program includes a "cash for clunkers" program that offers rebates of $3,172 to Germans who scrap their old cars for new, more efficient models.[15] The program totals about 1.5bn euros.[16]
Hungary
Hungary has a high level of debt and cannot effectively raise the money needed for deficit spending. They have unveiled a $7bn package of tax cuts and loan guarantees directed towards buinesses, especially small and medium sized enterprises.[17]
The Netherlands
In November 2008 the Dutch government passed a 6bn euro plan that mainly consisted of tax breaks for businesses that made larger investments and hired short-term workers. The package also included a new program to help find work for the unemployed,[18] and faster public sector investment.[13] In January 2009 the Dutch added a variety of guarantees to help ensure and encourage exports, corporate loans, and home and hospital construction.[13]
Oceania
Australia
In February 2009 Australia debuted a $27 billion (A$47bn) stimulus package. The package includes A$29bn ($18.85bn) for infrastructure projects such as public housing and school construction, and A$13bn ($8.45bn) in cash handouts to low to middle-income groups. This package follows a A$10.4bn ($6.76bn) October 2008 stimulus of cash payments to low and middle income Australians.[19]
References
- ^ Group of Twenty: Global Economic Policies and Prospects." http://www.imf.org/external/np/g20/pdf/031909a.pdf
- ^ http://www.cbo.gov/ftpdocs/99xx/doc9989/hr1conference.pdf
- ^ Paul Maidment. "China Announces Massive Stimulus Package." http://www.forbes.com/2008/11/09/china-stimulus-economy-biz-cx_pm_1109notes.html
- ^ Rial, Patrick. "Asian Stocks May Climb on Japan Stimulus, China Money Supply." Bloomberg. 13 April 2009. http://www.bloomberg.com/apps/news?pid=20601087&sid=a.Mekf7yvAbg&refer=home
- ^ "Japan in 10 trillion yen stimulus." BBC News. 6 April 2009. http://news.bbc.co.uk/2/hi/business/7985239.stm
- ^ "Japan unveils $154 billion stimulus." CNNMoney.com. http://money.cnn.com/2009/04/09/news/international/japan_economy.reut/index.htm?postversion=2009040907
- ^ Kyoko Shimodoi and Keiko Ujikane. "Aso to Unveil 15.4 Trillion Yen Japan Stimulus Plan." Bloomberg. 9 April 2009. http://www.bloomberg.com/apps/news?pid=20601068&sid=ajEJpJUo6nGc
- ^ Eswar Prasad and Isaac Sorkin. "Assessing the G-20 Stimulus Plans: A Deeper Look." The Brookings Institution. March 2009. http://www.brookings.edu/articles/2009/03_g20_stimulus_prasad.aspx
- ^ Seyoon Kim. "South Korea Plans 14 Trillion Won Stimulus in 2009." Bloomberg. 3 November 2008. http://www.bloomberg.com/apps/news?pid=20601087&sid=au_aCj.eWwIE&refer=home
- ^ "South Korea offers tax break on old cars in stimulus bid." Agence France-Presse. 13 April 2009. http://www.etaiwannews.com/etn/news_content.php?id=918384&lang=eng_news
- ^ "Hyundai Motor, Kia Shares Rise on Tax Breaks." The Korea Times. 13 April 2009. http://www.koreatimes.co.kr/www/news/biz/2009/04/123_43059.html
- ^ Seyoon Kim. "South Korea Plans to Spend Record 17.7 Trillion Won." Bloomberg. 24 March 2009. http://www.bloomberg.com/apps/news?pid=20601068&sid=a1nA3nYgmEdA&refer=home
- ^ a b c Sylvester Eijffinger. "Banking rescue and economic recovery plans in the Netherlands and other EU Member States: Why the Dutch should do more." Voxeu.org. 5 February 2009. http://voxeu.org/index.php?q=node/2994
- ^ Andrea Boltho and Wendy Carlin. "Germany needs high wage settlements and a serious fiscal stimulus." Voxeu.org. 26 November 2008. http://voxeu.org/index.php?q=node/2613
- ^ http://www.time.com/time/business/article/0,8599,1884711,00.html
- ^ http://uk.reuters.com/article/motoringAutoNews/idUKL660214020090406
- ^ http://www.forbes.com/feeds/afx/2008/11/13/afx5688037.html
- ^ http://edition.cnn.com/2008/WORLD/europe/11/21/dutch.economy/index.html
- ^ "Australia unveils a stimulus package." The Economist. February 5, 2009. http://www.economist.com/agenda/displaystory.cfm?story_id=13063259
External links
- Brookings: G-20 stimulus plans
- Text file of compiled, comparative stimulus plans
- [http://www.imf.org/external/pubs/ft/spn/2009/spn0903.pdf Charles Freedman, Michael Kumhof, Douglas Laxton, and
Jaewoo Lee. "The Case for Global Fiscal Stimulus." IMF Staff Position Note]