The global economic crisis continues to demand urgent policy responses as growth rates plunge in all of the major advanced and emerging economies. To stem the tide of economic woes and restore economic growth, numerous countries have implemented fiscal stimulus plans. The G-20 countries, in particular, pledged in November 2008 to aggressively use fiscal measures to reinvigorate their economies. How have they been doing on that promise and what do the stimulus plans they have announced so far look like?
To help decipher the G-20 stimulus plans, following are some simple tools and analysis about the stated activities to date.
Mapping the Money: An Interactive Map of the G-20 Stimulus Plans
Click to view the interactive map »
This interactive map showcases data on the size of the fiscal stimulus plans as announced by policymakers, compiled by the International Monetary Fund and supplemented with additional information from a variety of sources.
Countries with large and frontloaded stimulus plans appear in green. Those with modest plans in terms of size and speed appear in yellow. Other plans, which are considered unimpressive in scope by authors Eswar Prasad and Isaac Sorkin, appear in grey.
Analysis: G-20 Fiscal Plan Highlights
Size of Stimulus
- Almost all countries in the G-20 have agreed to some type of fiscal stimulus plan.
- The total amount of stimulus for G-20 countries totals approximately $692 billion for 2009, which is about 1.4 percent of the combined Gross Domestic Product (GDP) of these countries.
- Three countries—the
U.S., China and Japan—account for nearly $424 billion of the overall 2009 G-20 stimulus package. That is approximately 39 percent (of the total G-20 stimulus) for the U.S., 13 percent for China and 10 percent for Japan.
Composition of Stimulus
- There is considerable debate about whether tax cuts or spending is more effective in stimulating domestic demand and growth.
- Most countries that have announced more than one stimulus wave have increased the share of their spending (compared to tax cuts) for second rounds of stimulus, just as the U.S. has done from January 2008 to January 2009.
- There is a great deal of variation across countries in the share of stimulus that is devoted to tax cuts. Among the G-20 countries, excluding the U.S., about one-third of the stimulus is accounted for by tax cuts and the remainder by spending measures.
Speed of Stimulus
- Countries vary in the degree of “frontloading”—the speed with which the tax and expenditure measures hit the real economy—in their plans. This is partially a function of the variation in budget processes for each country.
- Of the 19 countries that make up the G-20 (the 20th spot is held by the European Union as a whole), only four countries—China, Germany, Saudi Arabia and the U.S.—plan to spend as much or more on stimulus (as a share of GDP) in 2010 than in 2009.
Assessing the G-20 Economic Stimulus Plans: A Deeper Look
By Eswar Prasad and Isaac Sorkin
The financial crisis turned into a broader macroeconomic crisis in the fall of 2008. The world economy has hit a wall since then, with growth plunging in all the major advanced and emerging economies.
Monetary policy acted as a first line of defense against the crisis but conventional measures appear to have reached their limits in many countries. Policy interest rates in many countries–including the U.S., U.K. and Japan–are now close to the zero nominal interest rate floor. Moreover, the implosion of financial systems in many economies has rendered monetary transmission mechanisms far less effective.
Thus, fiscal policy has become essential to kick-start the global recovery or, at a minimum, to prevent global Gross Domestic Product (GDP) from declining further. At the November 2008 G-20 Summit in Washington, DC, the leaders of the G-20 countries promised to “use fiscal measures to stimulate domestic demand to rapid effect, as appropriate, while maintaining a policy framework conducive to fiscal sustainability.” How well have countries been doing on this promise?
In this note, we provide a detailed assessment of the stimulus measures in each of the G-20 economies. We first present data on the size of fiscal stimulus packages as announced by the authorities and compiled by the IMF. These data represent estimates of the size of new measures, rather than the announced size of stimulus packages, which typically includes measures already planned before the scope of the crisis became clear. We then supplement these bottom-line numbers with additional information from a variety of sources. This allows us to evaluate the fiscal stimulus packages based on three key criteria:
- Size—the extent of stimulus relative to GDP
- Composition—balance between spending and revenue measures
- Frontloading—the speed with which fiscal measures hit the ground