Posted by Michel Lazare
In a recent podcast, our colleagues Paolo Mauro, Charles F. Kramer, and Steven A. Barnett of the IMF's Fiscal Affairs, Western Hemisphere, and Asia and the Pacific departments respectively,talk about using public money to compensate for decliningprivate demand and how the U.S. and China are doing it. (click here for a link to the podcast.)
This podcast is a rich source of information on how to use fiscal policy in a time of crisis, and more specifically in the current global financial crisis. Paolo Mauro who heads one of the Fiscal Operations Divisions of the Fiscal Affairs Department makes the point that there is now a consensus that fiscal stimulus are in the present circumstances necessary to counteract the fall in private sector demand and the overall contraction in demand. He underscores the need for international dialog and coordination on fiscal policy.
He also stresses, however, that fiscal stimulus should not be used by all countries because different countries are facing different initial fiscal positions and sustainability constraints.
Attention should also be paid to the nature of the spending to include in the package in order to maximize effect on demand: increasing public infrastructure spending looks attractive, while other types of spending (e.g., transfers) should be targeted. Countries, as a matter of fact, have used a wide varieties of modalities.
Listen to the podcast for many other points and a presentation of the U.S. and China fiscal stimulus packages.
