National fiscal policy response to the late 2000s recession
Encyclopedia
Many nations of the world have enacted fiscal stimulus plans in response to the global, ongoing recession
. These nations have used different combinations of government spending
and tax cuts to boost their sagging economies. Most of these plans are based on the Keynesian theory
that deficit spending by governments can replace some of the demand
lost during a recession and prevent the waste of economic resources idled by a lack of demand. The International Monetary Fund
has recommended that countries implement fiscal stimulus measures equal to 2% of their GDP to help offset the global contraction.
passed—and then-President George W. Bush
signed—the Economic Stimulus Act of 2008
, a $152 billion stimulus designed to help stave off a recession. The bill primarily consisted of $600 tax rebates to low and middle income Americans.
The United States combined many stimulus measures into the American Recovery and Reinvestment Act of 2009
, $787 billion bill covering a variety of expenditures from rebates on taxes to business investment. $184.9 billion will be spent in 2009, and $399.4 billion will be spent in 2010 with the remainder of the bill's appropriations spread over the rest of the decade. Announcements of rescue plans were associated with positive returns whereas a public intervention in favor of a specific bank showed negative impacts.
State Council
approved a $586 billion stimulus package
in November 2008.
announced a third stimulus plan of 15.4 trillion yen stimulus ($153 billion). This new plan includes 1.6 trillion yen investment in low-carbon technology
, 1.9 trillion yen on employment
programs, and 370 billion yen for new car subsidies. The legislature
responded to a request from Prime Minister Taro Aso
for a stimulus that equal to 2% of GDP. Japan has been one of the hardest hit nations during the recession
, having already experienced a lost decade
when economic growth
stagnated. Japan's total stimulus amounts to 5% of its GDP. Since taking office, Prime Minister Aso has passed 25 trillion yen ($250bn) in stimulus.
Japan has basically exhausted its conventional monetary policy
options with a near zero nominal interest rate
.
14 trillion won ($10.8bn) stimulus package in November 2008. The November package includes 4.6 trillion won for regional infrastructure
and 3 trillion won in tax break
—mainly for factory
investment
. South Korea's stimulus totaled
In April 2009 South Korea enacted a "cash for clunkers
" program that will give a tax break
of 2.5 million won ($1,900) to drivers who replace a car nine-years or older with a new car. The tax break will be in effect from May to December 2009 and is estimated to boost Hyundai
sales from 530,000 to 580,000 and Kia
sales from 327,000 to 357,000.
South Korea's 2009 budget includes $13bn in employment
stimulus including handout
s, training
, and infrastructure
. South Korea's total stimulus in 2008-2009 amounts to about $69 trillion won ($52bn).
recommends that member nations' stimulus plans amount to at least 1.2% of GDP.
. The German stimulus program includes a "cash for clunkers" program that offers rebates of $3,172 to Germans who scrap their old cars for new, more efficient models. The program totals about 5bn euros.
The UK has been limited in its ability to take discretionary fiscal action by the significant burden that bank bail-outs have had on public finances. This has contributed to a significant rise in the deficit to an estimated £175 billion (12.4% of GDP) in 2009-10 and a rise in the national debt above 80% of GDP at its peak. Furthermore, the UK has significant automatic stabilisers which have contributed far more than discretionary action and more than most other countries. As a result, further discretionary fiscal action is unlikely.
implemented a A$10 billion stimulus package with the support of the Senate
crossbench. The package included:
The packages were praised by various business groups, economists, the International Monetary Fund
(IMF) and the Organisation for Economic Co-operation and Development
(OECD).
Late 2000s recession
The late-2000s recession, sometimes referred to as the Great Recession or Lesser Depression or Long Recession, is a severe ongoing global economic problem that began in December 2007 and took a particularly sharp downward turn in September 2008. The Great Recession has affected the entire world...
. These nations have used different combinations of government spending
Government spending
Government spending includes all government consumption, investment but excludes transfer payments made by a state. Government acquisition of goods and services for current use to directly satisfy individual or collective needs of the members of the community is classed as government final...
and tax cuts to boost their sagging economies. Most of these plans are based on the Keynesian theory
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...
that deficit spending by governments can replace some of the demand
Demand (economics)
In economics, demand is the desire to own anything, the ability to pay for it, and the willingness to pay . The term demand signifies the ability or the willingness to buy a particular commodity at a given point of time....
lost during a recession and prevent the waste of economic resources idled by a lack of demand. The International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
has recommended that countries implement fiscal stimulus measures equal to 2% of their GDP to help offset the global contraction.
United States
In 2008 the United States CongressUnited States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
passed—and then-President George W. Bush
George W. Bush
George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....
signed—the Economic Stimulus Act of 2008
Economic Stimulus Act of 2008
The Economic Stimulus Act of 2008 was an Act of Congress providing for several kinds of economic stimuli intended to boost the United States economy in 2008 and to avert a recession, or ameliorate economic conditions. The stimulus package was passed by the U.S. House of Representatives on January...
, a $152 billion stimulus designed to help stave off a recession. The bill primarily consisted of $600 tax rebates to low and middle income Americans.
The United States combined many stimulus measures into the American Recovery and Reinvestment Act of 2009
American Recovery and Reinvestment Act of 2009
The American Recovery and Reinvestment Act of 2009, abbreviated ARRA and commonly referred to as the Stimulus or The Recovery Act, is an economic stimulus package enacted by the 111th United States Congress in February 2009 and signed into law on February 17, 2009, by President Barack Obama.To...
, $787 billion bill covering a variety of expenditures from rebates on taxes to business investment. $184.9 billion will be spent in 2009, and $399.4 billion will be spent in 2010 with the remainder of the bill's appropriations spread over the rest of the decade. Announcements of rescue plans were associated with positive returns whereas a public intervention in favor of a specific bank showed negative impacts.
China
The ChineseChina
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
State Council
State Council of the People's Republic of China
The State Council of the People's Republic of China , which is largely synonymous with the Central People's Government after 1954, is the chief administrative authority of the People's Republic of China. It is chaired by the Premier and includes the heads of each governmental department and agency...
approved a $586 billion stimulus package
2008 Chinese economic stimulus plan
The 2008–2009 Chinese economic stimulus plan is a RMB¥ 4 trillion stimulus package announced by the central government of the People's Republic of China on 9 November 2008 as an attempt to minimize the impact of the global financial crisis on the world's second largest economy...
in November 2008.
Japan
In April 2009 JapanJapan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
announced a third stimulus plan of 15.4 trillion yen stimulus ($153 billion). This new plan includes 1.6 trillion yen investment in low-carbon technology
Technology
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...
, 1.9 trillion yen on employment
Employment
Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...
programs, and 370 billion yen for new car subsidies. The legislature
Legislature
A legislature is a kind of deliberative assembly with the power to pass, amend, and repeal laws. The law created by a legislature is called legislation or statutory law. In addition to enacting laws, legislatures usually have exclusive authority to raise or lower taxes and adopt the budget and...
responded to a request from Prime Minister Taro Aso
Taro Aso
was the 92nd Prime Minister of Japan serving from September 2008 to September 2009, and was defeated in the August 2009 election.He has served in the House of Representatives since 1979. He was Minister for Foreign Affairs from 2005 to 2007, and was Secretary-General of the LDP briefly in 2007 and...
for a stimulus that equal to 2% of GDP. Japan has been one of the hardest hit nations during the recession
Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...
, having already experienced a lost decade
Lost Decade (Japan)
The is the time after the Japanese asset price bubble's collapse within the Japanese economy, which occurred gradually rather than catastrophically...
when economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
stagnated. Japan's total stimulus amounts to 5% of its GDP. Since taking office, Prime Minister Aso has passed 25 trillion yen ($250bn) in stimulus.
Japan has basically exhausted its conventional monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
options with a near zero nominal interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
.
South Korea
South KoreaSouth Korea
The Republic of Korea , , is a sovereign state in East Asia, located on the southern portion of the Korean Peninsula. It is neighbored by the People's Republic of China to the west, Japan to the east, North Korea to the north, and the East China Sea and Republic of China to the south...
14 trillion won ($10.8bn) stimulus package in November 2008. The November package includes 4.6 trillion won for regional infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
and 3 trillion won in tax break
Tax break
Tax break is a slang term referring to any item which reduces tax, including any tax exemption, tax deduction, or tax credit. Tax break is also a pejorative term used in the United States to refer to purportedly favorable tax treatment of any class of persons, as in "individuals get a tax break...
—mainly for factory
Factory
A factory or manufacturing plant is an industrial building where laborers manufacture goods or supervise machines processing one product into another. Most modern factories have large warehouses or warehouse-like facilities that contain heavy equipment used for assembly line production...
investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
. South Korea's stimulus totaled
In April 2009 South Korea enacted a "cash for clunkers
Scrappage program
A scrappage program is a government budget program to promote the replacement of old vehicles with modern vehicles. Scrappage programs generally have the dual aim of stimulating the automobile industry and removing inefficient, high emissions vehicles from the road...
" program that will give a tax break
Tax break
Tax break is a slang term referring to any item which reduces tax, including any tax exemption, tax deduction, or tax credit. Tax break is also a pejorative term used in the United States to refer to purportedly favorable tax treatment of any class of persons, as in "individuals get a tax break...
of 2.5 million won ($1,900) to drivers who replace a car nine-years or older with a new car. The tax break will be in effect from May to December 2009 and is estimated to boost Hyundai
Hyundai
Hyundai ) is a global conglomerate company, part of the Korean chaebol, that was founded in South Korea by one of the most famous businessmen in Korean history: Chung Ju-yung...
sales from 530,000 to 580,000 and Kia
Kia Motors
Kia Motors , headquartered in Seoul, is South Korea's second-largest automobile manufacturer, following the Hyundai Motor Company, with sales of over 1.4 million vehicles in 2010...
sales from 327,000 to 357,000.
South Korea's 2009 budget includes $13bn in employment
Employment
Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...
stimulus including handout
Handout
A handout is something given freely or distributed free. It can refer to materials handed out for presentation purposes or to a charitable gift, among other things.During the Great Depression, many people lived entirely on handouts of one kind or another...
s, training
Training
The term training refers to the acquisition of knowledge, skills, and competencies as a result of the teaching of vocational or practical skills and knowledge that relate to specific useful competencies. It forms the core of apprenticeships and provides the backbone of content at institutes of...
, and infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
. South Korea's total stimulus in 2008-2009 amounts to about $69 trillion won ($52bn).
European Union
The European Union passed a 200 billion euro plan with member countries developing their own national plans, worth 170bn to 200bn euro in total, and an EU-wide plan of 30bn euro coming from EU funding. The European CommissionEuropean Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
recommends that member nations' stimulus plans amount to at least 1.2% of GDP.
Germany
Compared to other European nations, Germany is in a unique position: It has low debt, a high balance of trade, and an export driven economy. The recession has led to a decline in German exports, but Germany has the capacity to replace some of the export demand with domestic stimulus. The Germans were initially hesitant to pass a large stimulus bill; however, in 2009, the Germans passed a 50bn euro stimulus bill that focused on taxes, a child tax credit, and spending on transportation and education. Prior to the 2009 stimulus, one of Germany's largest stimulus efforts had been a scrappage programScrappage program
A scrappage program is a government budget program to promote the replacement of old vehicles with modern vehicles. Scrappage programs generally have the dual aim of stimulating the automobile industry and removing inefficient, high emissions vehicles from the road...
. The German stimulus program includes a "cash for clunkers" program that offers rebates of $3,172 to Germans who scrap their old cars for new, more efficient models. The program totals about 5bn euros.
Hungary
Hungary has a high level of debt and cannot effectively raise the money needed for deficit spending. They have unveiled a $7bn package of tax cuts and loan guarantees directed towards buinesses, especially small and medium sized enterprises.The Netherlands
In November 2008 the Dutch government passed a 6bn euro plan that mainly consisted of tax breaks for businesses that made larger investments and hired short-term workers. The package also included a new program to help find work for the unemployed, and faster public sector investment. In January 2009 the Dutch added a variety of guarantees to help ensure and encourage exports, corporate loans, and home and hospital construction.United Kingdom
The United Kingdom has been one of the major economies leading calls for fiscal action to stimulate aggregate demand. Throughout 2008 a number of fiscal measures were introduced including a £145 tax cut for basic rate (below £34,800 pa earnings) tax payers, a temporary 2.5% cut in Value Added Tax (Sales Tax), £3 billion worth of investment spending brought forward from 2010 and a variety of other measures such as a £20 billion Small Enterprise Loan Guarantee Scheme. The total cost of these measures, mostly announced in the November 2008 Pre-Budget Report was roughly £20 billion (not counting loan guarantees). Further limited measures worth £5 billion were unveiled in the 2009 budget including training help for the young unemployed and a "car scrappage" scheme which offered £2,000 in subsidy for a new car purchase for the scrapping of a car more than 10 years old (similar to schemes in Germany and France).The UK has been limited in its ability to take discretionary fiscal action by the significant burden that bank bail-outs have had on public finances. This has contributed to a significant rise in the deficit to an estimated £175 billion (12.4% of GDP) in 2009-10 and a rise in the national debt above 80% of GDP at its peak. Furthermore, the UK has significant automatic stabilisers which have contributed far more than discretionary action and more than most other countries. As a result, further discretionary fiscal action is unlikely.
Australia
First stimulus
In October 2008, the Rudd governmentRudd Government
The Rudd Government refers to the federal Executive Government of Australia of the Australian Labor Party from 2007 to 2010, led by Kevin Rudd as Prime Minister. The Rudd Government commenced on 3 December 2007, when Rudd was sworn in along with his ministry...
implemented a A$10 billion stimulus package with the support of the Senate
Australian Senate
The Senate is the upper house of the bicameral Parliament of Australia, the lower house being the House of Representatives. Senators are popularly elected under a system of proportional representation. Senators are elected for a term that is usually six years; after a double dissolution, however,...
crossbench. The package included:
- $4.8 billion down payment on long-term pension reform
- $3.9 billion for low and middle income families ($1000 per child, pensioners $1400, pensioner couples $2100)
- $1.5 billion investment to help first home buyers
- $187 million to create 56,000 new training places in 2008-09
- Accelerate three nation-building funds and investment in nation building projects to 2009
Second stimulus
In February 2009, the Rudd government implemented a A$42 billion stimulus package again with the support of the Senate crossbench. The package included:- $12.7 billion for immediate one-off payments to working Australians, families with school-age children, farmers, single income families and for those undergoing training (A$950 for the average single worker)
- $14.7 billion to be invested in school infrastructure and maintenance and bringing forward funding for trade training centres
- $6.6 billion to increase the national stock of public and community housing by about 20,000
- $3.9 billion to provide free insulation to 2.7 million homes and solar hot water rebates
- $2.7 billion in small and general business tax breaks to provide deductions for some equipment purchases before the end of June 2009.
- $890 million to fix regional roads and blackspots, to install railway boom gates and for regional and local government infrastructure.
Outcome
Australia avoided recession and its growth figures were internationally very high, whilst unemployment remained comparatively low, despite net public sector debt remaining substantially low.The packages were praised by various business groups, economists, the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(IMF) and the Organisation for Economic Co-operation and Development
Organisation for Economic Co-operation and Development
The Organisation for Economic Co-operation and Development is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade...
(OECD).