Net Fiscal Stimulus during the Great Recession

This paper studies the patterns of government expenditure stimuli among Organisation for Economic Co-operation and Development (OECD) countries during the Great Recession (2007-2009). Overall, we find that the USA net fiscal stimulus was modest relative to peers, despite it being the epicenter of the crisis, and having access to relatively cheap funding of its twin deficits. Of the 28 countries in the sample, the USA is ranked among the bottom third in terms of the rate of expansion of consolidated government consumption and investment expenditures. Contrary to historical experience, emerging markets had strongly countercyclical policy during the period immediately preceding the Great Recession and the Great Recession itself. Federal unions, emerging markets and countries with very high gross domestic product (GDP) growth during the pre-recession period saw larger net fiscal stimulus on average than their counterparts. We also find that greater net fiscal stimulus was associated with lower flow costs of general government debt in the same or subsequent period.