{
  "title": "IMF Survey : Crisis Offers Preliminary Lessons on Fiscal Policy",
  "publication": "IMF News, September 17, 2013",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sopol091313a",
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  "summary": "Evidence on how advanced economies performed during and after the 2008–09 crisis sheds new light on the fiscal risks these economies face and on the effectiveness of using fiscal policy to stabilize the economy.",
  "publishDate": "2013-09-17",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Publication: IMF Survey  \n- Date: September 17, 2013\n- Core message: Evidence from how advanced economies performed during and after the 2008–09 crisis sheds new light on fiscal risks and on the effectiveness of using fiscal policy to stabilize the economy.\n- Lead commentators: Bernardin Akitoby (division chief, Fiscal Affairs Department) and Daniel Leigh (Research Department)."
    },
    {
      "heading": "Fiscal policy to fight recessions",
      "content": "- Main findings:\n  - \"Fiscal policy can have powerful short-run effects on the economy\" under certain conditions.\n  - Fiscal effects are larger when:\n    - central banks are unable to reduce interest rates below zero,\n    - the financial sector is weak,\n    - the economy is producing at significantly below its potential.\n  - New research raises doubts about precrisis evidence that fiscal contractions can be expansionary.\n  - Precrisis concerns about the timing and implementation of discretionary fiscal stimulus were overblown in many cases.\n  - Most advanced economies quickly enacted fiscal stimulus measures when the crisis erupted, and most temporary measures were allowed to lapse or were rolled back after the crisis’s initial phase.\n  - Concerns remain that discretionary stimulus measures may not always be timely and reversible, especially during less severe recessions.\n- Policy implication:\n  - Use of discretionary fiscal stimulus going forward should depend on whether future conditions resemble those during the crisis (for example, \"monetary policy constrained by near-zero interest rates\")."
    },
    {
      "heading": "Fiscal risks and debt sustainability",
      "content": "- Main findings:\n  - Before the crisis a full-blown fiscal crisis in an advanced economy was generally considered remote; events since 2008 showed otherwise.\n  - Most advanced economies’ fiscal buffers were not big enough to absorb the severe shocks experienced since 2008, and several countries experienced sovereign debt crises.\n  - Lesson: governments should take a \"risk-based\" approach to analyzing public debt sustainability, including risks from the financial sector and other country-specific fiscal vulnerabilities.\n  - The level of debt considered \"safe\" depends on the potential risks each country faces.\n  - As countries rebuild buffers, prudent policymakers should aim for a long-run debt level that is lower than what was considered reasonable before the crisis."
    },
    {
      "heading": "Designing fiscal adjustments",
      "content": "- Main findings:\n  - Economists are questioning the merits of doing the bulk of fiscal adjustment upfront.\n  - Appropriate speed of adjustment depends on:\n    - the state of the economy,\n    - the condition of public finances,\n    - the extent of financial market pressures.\n  - Most advanced economies should adjust at a gradual pace within a credible medium-term plan to limit short-run growth impact.\n  - Excessive delay in adjustment risks loss of investor confidence, higher interest rates, and destabilizing debt dynamics at high debt levels.\n  - Countries under market pressure or without market access may need to \"frontload\" adjustments, but there may be a \"speed limit\" beyond which faster adjustment is counterproductive.\n- Revenue/expenditure mix guidance:\n  - Evidence is less clear-cut on the best mix of measures.\n  - Importance of equity considerations, for example through better targeting of revenue and spending measures.\n  - \"Raising taxes further when the tax burden is already high can undermine a country’s potential growth,\" so:\n    - Countries with a relatively high tax burden should focus on reducing spending.\n    - Countries with lower spending and revenue levels would have more scope to boost revenues."
    },
    {
      "heading": "Fiscal institutions and transparency",
      "content": "- Main findings and recommendations:\n  - Well-functioning fiscal institutions (e.g., medium-term budget frameworks and fiscal rules) are important to ensure fiscal sustainability.\n  - These tools need credibility and sufficient flexibility to respond to economic fluctuations.\n  - Design features:\n    - Targeting structural fiscal balance can help avoid overspending in good times.\n    - “Escape clauses” allow freedom to use fiscal policy when hit by large shocks.\n    - Independent fiscal agencies can help monitor rule adherence and prevent abuse of flexibility.\n  - Crisis revealed shortcomings in fiscal transparency.\n    - Further efforts needed to improve the timeliness and institutional coverage of fiscal reporting.\n    - Countries should publish fiscal risk assessments to raise awareness about potential sources of fiscal risks.\n\nIMF Survey : Crisis Offers Preliminary Lessons on Fiscal Policy — IMF Survey, September 17, 2013\n\n---\n\n Content in this bundle\n\n- 072113pdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- Sdn1208pdf (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- https://www.imf.org/en/News/country-focus\n- PRESS CENTER\n- Policy\n- Historical look at debt & deficits\n- Fiscal adjustment in an uncertain world\n- Strengthening transparency\n- The basics of fiscal policy\n- paper\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/sopol091313a"
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    "Published: September 17, 2013",
    "Publication: IMF Survey",
    "Date: September 17, 2013",
    "Core message: Evidence from how advanced economies performed during and after the 2008–09 crisis sheds new light on fiscal risks and on the effectiveness of using fiscal policy to stabilize the economy.",
    "Lead commentators: Bernardin Akitoby (division chief, Fiscal Affairs Department) and Daniel Leigh (Research Department).",
    "Main findings:",
    "Policy implication:",
    "Main findings:",
    "Main findings:",
    "Revenue/expenditure mix guidance:",
    "Main findings and recommendations:",
    "[072113pdf (PDF)](/-/media/websites/imf/imported/external/np/pp/eng/2013/_072113pdf.pdf){rel=\"external\" type=\"application/pdf\"}",
    "[Sdn1208pdf (PDF)](/-/media/websites/imf/imported/external/pubs/ft/sdn/2012/_sdn1208pdf.pdf){rel=\"external\" type=\"application/pdf\"}",
    "[https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[Policy](https://www.imf.org/en/news/search)",
    "[Historical look at debt & deficits](http://www.imf.org/external/pubs/ft/survey/so/2013/RES012513A.htm)",
    "[Fiscal adjustment in an uncertain world](http://www.imf.org/external/pubs/ft/fm/2013/01/fmindex.htm)",
    "[Strengthening transparency](http://www.imf.org/external/pubs/ft/survey/so/2013/POL061713A.htm)",
    "[The basics of fiscal policy](http://www.imf.org/external/pubs/ft/fandd/basics/fiscpol.htm)",
    "[paper](http://www.imf.org/external/pp/longres.aspx?id=4801)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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