DataPoints: Fruitful Multipliers
Nothing like a good worldwide recession to revive academic debate about the nature of fiscal stimulus. As one new study has it:
We find that models currently being used in practice to evaluate fiscal policy stimulus proposals are not robust. Government spending multipliers in an alternative empirically estimated and widely-cited new Keynesian model are much smaller than in these old Keynesian models; the estimated stimulus is extremely small just when needed most, and GDP and employment effects are only one-sixth as large, with private sector employment impacts likely to be even smaller.
While another sees it quite differently:
Global fiscal stimulus is essential now to support aggregate demand and restore economic growth. The International Monetary Fund has called for fiscal stimulus in as many countries as possible, including emerging market and advanced economies. This paper uses simulations with a multi-country structural model to show that worldwide expansionary fiscal policy combined with accommodative monetary policy can have significant multiplier effects on the world economy.
Meanwhile, our Tine Olsen surveys the stimuli in process across the Asia Pacific region, and finds a number of interesting variations on a theme.
The larger private consumption's share of total GDP, the larger the overall effect will be from boosting private consumption. Efforts to stimulate growth through consumer spending should therefore be more effective in the Philippines, Indonesia, New Zealand and India, than they will be in the export-heavy economies of China, Singapore and South Korea. This could explain the focus on tax breaks and social insurance in the Philippines, compared with the strong focus on infrastructure spending in China.
Open economies lose some of their fiscal stimulus impact to other economies through consumer and business spending on imports. The small, open economies of Hong Kong and Singapore are extreme cases, where imports are well above total GDP because of the very high level of re-exports.
In the larger economies of Japan, Australia and India, imports make up a relatively low share of GDP. In these countries, stimulus measures aimed at private consumption should be effective, with larger multipliers. Australia and Japan are among those countries that have transferred cash to citizens, which may not be such a bad policy after all.
