Fiscal Impulse during the 2008 Crisis

Abstract

The design of optimal policy responses to global capital market turmoil has been the source of intensive debate. This debate has now assumed a different perspective after the world financial crisis of 2008. In the aftermath of the crisis, the adoption of activist "fiscal stimulus" in order to combat the risk of increasing recession and unemployment has been thoroughly advocated. This paper uses a simplified version of the empirical methodology developed by Ortiz, Ottonello, Sturzenegger and Talvi (2007) to discuss the fiscal policy measures adopted in the aftermath of the 2008 world financial crisis, and tries to find evidence of the adoption of expansionary fiscal policies right after the crisis. Then, it tries to find out what determines the capacity of countries to use fiscal impulse, by using both cross-sectional and panel data analysis.