Conclusions

The economic and financial crisis has prompted a massive fiscal response that will significantly change the global fiscal landscape for many years to come. As the world economy hopefully moves out of the recession several issues will be relevant for policymakers. First, it remains to be seen to what extent the fiscal stimulus packages will be able to produce an impact beyond short-term support to demand and generate a positive impact on long-term growth, i.e., obtain a double dividend. This is particularly relevant as the recession will, most likely, hurt potential output on a global scale. Second, it remains unclear as to when, to what extent, and with what speed the stimulus will have to be withdrawn to make room for fiscal consolidation. Third, the size of the fiscal stimulus and the consequent debt accumulation will make fiscal sustainability in several countries much more problematic and may increase, at least in some cases, the temptation to inflate debt away. Fourth, it remains to be seen to what extent the cooperative approach to fiscal policy that has been seen since immediately after the crisis will persist as we move into a new phase.

The response to the crisis has been unprecedented in terms of resources and in terms of coordination among policymakers. Hopefully the response will prevent a deeper recession and return the world to a path of positive growth. For this to occur, the policy momentum should not be interrupted. The new economic landscape calls for the definition of a new global policy framework that should be based on three pillars: (i) an integrated approach targeted at reinforcing and possibly raising potential growth by better connecting macroeconomic, structural, and regulatory policies, (ii) strong institutional frameworks to ensure fiscal sustainability, and (iii) enhanced international cooperation in the formulation and implementation of macroeconomic, structural, and regulatory policies targeted at preventing unsustainable payment imbalances from developing. The implementation of such a framework will need to take into account structural as well as institutional differences among countries and regions.

Download this Paper [ PDF 296.4KB| 23 pages ].

Comment(s)

There are [0] comment(s) for this entry. Post a comment.