Topic2-LatikaSharma

A country specific approach towards it renders it

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Unformatted text preview: rease the long term budget deficits. • A country specific approach towards it renders it ineffective and inadequate. There is a need for coordinated international action because there are considerable spill-over effects of the policy actions taken by the countries tied to their individual circumstances limiting the effectiveness of actions taken by individual countries, or even create adverse externalities across borders. • Clarity of policy together with a strong commitment by policymakers to curb the risk of depression reduce uncertainty and lead consumers to decrease precautionary savings as well as wait-watch-act attitude which has provided a major drag to the effectiveness of the stimulus in most of the countries. THE COSTS OF FISCAL STIMULUS • Potential long run costs of fiscal deficit The fiscal impulse has a long lasting negative effect on real growth where the debt burden is high. Higher spending that is financed by borrowing reduces policy credibility and increases the cost of borrowing and the debt ratio, countering the effectiveness of the stimulus. Rising concerns about the cost of debt service and debt sustainability crowds out private activity with long-lasting...
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