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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
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- Winter '14