A fiscal stimulus package in order to deliver the

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Unformatted text preview: transfers and government investment. • A fiscal stimulus package in order to deliver the maximum push to the recovery of a recession hit economy should be timely, targeted and temporary. 1. Policymakers should act in a timely manner to taking into consideration the time lags of implementation and response. Fiscal stimulus should not be enacted prematurely, delayed too long, or consist of tax cuts or spending increases that would take too long to be implemented and boost the economy. 2. A targeted approach is necessary to generate largest spending and transfer multipliers. The largest multipliers occur in emerging Asia and the remaining countries because the share of hand-to-mouth households is larger in these areas than in the large industrialized countries. Thus, stimulus package should comprise policies targeted towards consumers who are most credit constrained such as greater subsidies, unemployment benefits, tax credits, expansion of safety nets, etc. rather than one aiming at public sector wage increases and aid to sectors like healthcare, schools, alternative energy sources, and medical and basic research ( as in the US). 3. Tax cuts and spending increases should be temporary (but should be lasting till the recession persists) in order to raise the short run output and not to inc...
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