## How Effective is Fiscal Policy Response in Systemic Banking Crises?

_IMF Working Papers, July 1, 2009_

## Source details

**Canonical URL:** [How Effective is Fiscal Policy Response in Systemic Banking Crises?](https://www.imf.org/en/publications/wp/issues/2016/12/31/how-effective-is-fiscal-policy-response-in-systemic-banking-crises-23130)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/31/how-effective-is-fiscal-policy-response-in-systemic-banking-crises-23130/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/31/how-effective-is-fiscal-policy-response-in-systemic-banking-crises-23130/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/31/how-effective-is-fiscal-policy-response-in-systemic-banking-crises-23130/bundle-manifest.json)

## Bibliographic details
- Authors: Sanjeev Gupta, Carlos Mulas-Granados, Emanuele Baldacci
- Published: July 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451873078.001

---

### Study scope and metadata
- Authors: Sanjeev Gupta, Carlos Mulas-Granados, Emanuele Baldacci
- Date: July 1, 2009
- Sample: 118 episodes of systemic banking crisis in advanced and emerging market countries during 1980-2008
- Publication: IMF Working Papers, Working Paper No. 2009/160, Issue 160, Volume 2009, Pages: 38
- DOI: https://doi.org/10.5089/9781451873078.001
- Stock No: WPIEA2009160
- ISBN: 9781451873078
- ISSN: 1018-5941

### Core findings
- Timeliness and countercyclicality
  - Timely countercyclical fiscal measures contribute to shortening the length of crisis episodes by stimulating aggregate demand.
- Composition of fiscal expansions and crisis duration
  - Fiscal expansions that rely mostly on measures to support government consumption are more effective in shortening the crisis duration than those based on public investment or income tax cuts.
- Fiscal space and funding constraints
  - The effectiveness of fiscal expansions in shortening crisis duration does not hold for countries with limited fiscal space where fiscal expansions are prevented by funding constraints.
- Composition and output recovery
  - The composition of countercyclical fiscal responses matters for output recovery after the crisis, with public investment yielding the strongest impact on growth.
- Trade-off identified
  - The results suggest a potential trade-off between short-run aggregate demand support and medium-term productivity growth objectives in fiscal stimulus packages adopted in distress times.

### Policy implications and considerations
- Prioritize timeliness: Implement countercyclical fiscal measures promptly during systemic banking crises to help shorten crisis duration via aggregate demand stimulus.
- Consider composition trade-offs:
  - Government consumption-focused fiscal expansions: more effective at shortening crisis duration in settings with available fiscal space.
  - Public investment: strongest impact on growth during output recovery, supporting medium-term productivity.
  - Income tax cuts: less effective at shortening crisis duration compared with measures supporting government consumption.
- Fiscal space assessment:
  - Evaluate funding constraints and fiscal space before deploying expansionary fiscal policy; limited fiscal space can prevent the effectiveness of fiscal expansions.
- Balance objectives:
  - Design stimulus packages mindful of the potential trade-off between immediate demand stabilization and medium-term productivity-enhancing public investment.

_This summary is based on the IMF Working Paper "How Effective is Fiscal Policy Response in Systemic Banking Crises?" by Sanjeev Gupta, Carlos Mulas-Granados, and Emanuele Baldacci (July 1, 2009)._

---

## Content in this bundle

- **1. Fiscal Aggregates**
  - [1. Fiscal Aggregates (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2009/_wp09160.pdf.md){rel="alternate" type="text/markdown"}
  - [1. Fiscal Aggregates (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2009/_wp09160.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/how-effective-is-fiscal-policy-response-in-systemic-banking-crises-23130_