Publication: Getting More from a Fiscal Stimulus
Loading...
Published
2009-07
ISSN
Date
2012-08-13
Author(s)
Editor(s)
Abstract
The severity and global nature of the current financial and economic crisis has increased the role expected of fiscal policy in stimulating national and global demand, protecting vulnerable groups, and investing for future growth (International Monetary Fund, or IMF 2009). For those that can afford it, this means quickly designing and implementing fiscal stimulus packages. These new challenges have arisen while governments across the world have, for some time, been reforming their budget management frameworks to improve public sector performance to better meet complex and ever-rising obligations. While there is a risk that the short-term stimulus diverts attention from longer-term performance reforms, this note suggests that 'performance-informed budgeting' can help countries better address the challenges of the current financial and economic crisis. Specifically, how governments might enhance the impact of their fiscal stimulus through three interrelated performance-informed areas: i) reprioritizing public spending to maximize the impact of the stimulus measures; ii) improving the efficiency and effectiveness of operational expenditures to avoid waste and maximize the available fiscal space; and iii) accelerating investment expenditures, to both stimulate demand and build for future growth.
Link to Data Set
Citation
“Thomas, Theo. 2009. Getting More from a Fiscal Stimulus. Global Expert Team (GET) Note. © World Bank. http://hdl.handle.net/10986/10536 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Demystifying China’s Fiscal Stimulus(World Bank, Washington, DC, 2012-10)China's government economic stimulus package in 2008-09 appears to have worked well. It seems to have been about the right size, included a number of appropriate components, and was well timed. Its subnational component was designed to maximize the impact of the stimulus package on the economy and minimize the potential procyclical elements that are usually built into subnational fiscal mechanisms in federal countries. Moreover, China's massive fiscal stimulus played an important role in the overall recovery of the global economy. Using a simple analytical framework, this paper focuses on two key factors behind the success of the stimulus: investments in bottleneck-easing infrastructure projects and countercyclical nature of subnational spending based on the assumption that well-chosen infrastructure projects could improve business climate and thereby crowd in the private investment. The paper concludes that the expansionary subnational government spending played a key role in strengthening the overall impact of the stimulus and sustaining growth. It also highlights the importance of public investment quality and cautions about the sustainability of local government financing through the domestic banking system and increases in local governments off balance sheet or contingent liabilities. These lessons may be of particular relevance today for China, as well as other countries, in formulating policy response to another global economic slowdown or crisis, possibly as a result of the Eurozone turmoil. For China, investing in urban infrastructure and green economy, as well as in higher quality and better targeted social services, will be crucial for improving income inequality and inducing a more inclusive growth path.Publication The Dynamic Effects of Countercyclical Fiscal Stimulus on Output in Tunisia(2009-10-01)With the global financial crisis hitting many countries, policymakers around the world have been weighing different countercyclical policies to support aggregate demand and restore growth. The analysis in this paper estimates a Structural Vector Error Correction model for Tunisia in order to identify the impact of fiscal policy shocks on real output. The authors find that public investment has a small impact on output in the short run but is an important medium-term growth-enhancing countercyclical instrument that has a robust impact on growth. Raising public investment by 1 dinar yields 0.12 dinar the first year, 0.30 dinar the second year, half a dinar the third year, and 1.08 dinars the sixth year. An increase in recurrent expenditure has a smaller but positive and persistent impact on real output. For Tunisia to obtain a larger short-term impact of public spending on output, procurement processes should be made faster and simpler. Finally, the analysis finds a countercyclical pattern of real public investment vis-à-vis real output and a relative rigidity/inelasticity of recurrent expenditures to output fluctuations.Publication Review of Public Investment Management Performance (PIMP) in an Economic Crisis(World Bank, Washington, DC, 2009-08)This report reviews how various countries are seeking to boost public investment management performance (PIMP) in response to the current economic downturn. Public investment, for the purposes of this review, includes investment by the general government plus investment by government-owned corporations. The report was commissioned for the Public Sector Performance Global Expert Team (PSP GET) at the World Bank. The report focuses on the potential roles for public investment management in the current downturn, including: i) scaling-up investment spending i.e. simply doing more; ii) selecting investments that are likely to be most effective in terms of stimulating the economy or protecting particular social/vulnerable groups; iii) helping to accelerate investments by reducing the time between conception to implementation; and iv) other improvements in the general quality of investment spending, i.e. reducing waste or enhancing efficiency and effectiveness.Publication South Africa Economic Update : Fiscal Policy and Redistribution in an Unequal Society(Washington, DC, 2014-11)The global economic recovery remains uneven, as growth in the United States is gaining momentum but appears to be at risk of stalling in the Euro Area and Japan. U.S. growth is expected to gain pace over the rest of the year and into 2015 as employment prospects boost real income growth and confidence. Following the Euro Area s exit from recession in 2013, GDP was flat in 2014, and preliminary data for the third quarter suggest slowing growth momentum amid weak domestic demand, ongoing balance sheet adjustments, a fragmented banking sector, and rising geopolitical risks. In Japan, a sales tax hike in April caused a more significant contraction in activity than expected, while exports failed to pick up.Publication Is Fiscal Policy the Answer? A Developing Country Perspective(Washington, DC: World Bank, 2013)Fiscal policy is an important instrument for maintaining and improving living standards. Such living standards can be viewed as an outcome of the interaction between the opportunities offered by society and the readiness and ability of each person to exploit them. Under certain circumstances, public finance can make an important contribution to the creation of opportunities within a given society by raising resources from the private sector through taxation or borrowing (domestic and external) and allocating those resources effectively and equitably in the form of public spending, including through public goods and transfers. The first chapters in this volume sketch out a framework that policy makers can use in adopting a more cohesive or integrated approach to the short- and long-term dimensions of fiscal policy. Here the traditional threefold rationale for fiscal policy proposed by Musgrave-stabilization, resource allocation, and distribution-continues to be useful. Other chapters in this volume take up some of the critical institutional challenges in implementing fiscal policy for longer-term growth and development. These chapters also look at the tools and approaches being developed to address these challenges. Improving the quality of public investment management is a particular priority in view of the recent evidence that as little as half of all public investment expenditure translates into productive capital stock. The last chapter in this volume is a case study of fiscal responses to the great recession in low-income Sub-Saharan Africa, looking at stabilization and the longer-run growth, as well as distributional aspects of such responses. The growing depth of domestic financial markets in many African countries rather unexpectedly is turning out to be a critical source of financing for fiscal policy responses.
Users also downloaded
Showing related downloaded files
Publication Lessons in Investment Promotion(World Bank, Washington, DC, 2021-07-26)Foreign direct investment (FDI) can contribute significantly towards India reaching its aspiration of 8 percent growth per annum. Prior to 2009, India did not have a national dedicated organization with a specific mandate to promote and facilitate FDI. Invest India was then established, but it was not until 2015 that it was empowered to ramp up its investment promotion efforts, with the resources and reach to be fully active in the FDI marketplace. Invest India’s journey can be described against 9 critical success factors (CSFs) that chart how the agency responded to its challenges, to now deliver sustained success evidenced by facilitating USD 31 billion of FDI and direct creation of nearly 303,900 jobs. In part, Invest India has contributed to India’s stellar FDI performance in 2020, when the country reached another record of USD 64 million, against a global drop of 35 percent (UNCTAD 2021). While some challenges remain, Invest India’s journey provides valuable learnings for other investment promotion agencies (IPAs), which in the context of the Covid-19 crisis, will need to be in a period of review and reform.Publication Land Redistribution in South Africa(World Bank, Washington, DC, 2012-05-28)This paper provides an overview of land reform in South Africa from 1994 to 2011, with the focus on the land redistribution. The government policies and associated implementation since 1994 have not generated expected social and economic results for a number of reasons. Even where land has been transferred, it appears to have had minimal impact on the livelihoods of beneficiaries, largely because of inappropriate project design, a lack of necessary support services and shortages of working capital, leading to widespread underutilization of land. There is no evidence to suggest that land reform has led to improvements in agricultural efficiency, income, employment or economic growth. Therefore, the current approach, based on acquisition of land through the open market, minimal support to new farmers, and bureaucratic imposition of production models loosely based on existing commercial operators, is unlikely to transform the rural economy and lift people out of poverty. The paper argues that there are two important missing aspects in the land reform program. First, there is an absence of any viable small-farmer path to development, which could enable the millions of households residing in the communal areas and on commercial farms to expand their own production and accumulate wealth and resources in an incremental manner. Making this happen would require radical restructuring of existing farm units to create family-size farms, more realistic farm planning, appropriate support from a much-reformed state agricultural service, and a much greater role for beneficiaries in the design and implementation of their own projects. Second, what is clearly missing from the governance tradition is the sustained focus on implementation, resource mobilization, and timely policy adjustment. Much more will be required for land reform program to contribute significantly to economic growth and to the redistribution of wealth and opportunities to the majority of the population.Publication Multimorbidity(Washington, DC: World Bank, 2024-06-20)The demographic transition accompanied by the epidemiological transition, evidenced by the change in the health profile of the Brazilian population, brings important challenges to the Unified Health System. The accelerated aging of the population further accentuates the effects of the triple burden of diseases, placing society as a all in the face of this new reality. Important changes are underway, both economic and social. The Coronavirus pandemic has made this context even more complex, increasing inequalities, including in health, further impacting health services, which were excessively demanded in these three years, initially due to the global health challenge that found Brazil one of its most fertile grounds, and, subsequently, by the consequences left by the inevitable prioritization of the emerging disease, which led services to leave aside much of the care for chronic patients. Considering the gradual increase in the concomitant occurrence of multiple chronic diseases affecting the same individual, whether over the last few decades or throughout the citizen’s life, the current situation of multimorbidity deserves, at the very least, the attention of health authorities. This report characterizes multimorbidity in the country, presenting two examples of chronic disease management, one from the public sector and the other from the private sector.Publication Boom, Bust and Up Again? Evolution, Drivers and Impact of Commodity Prices: Implications for Indonesia(World Bank, Jakarta, 2010-12)Indonesia is one of the largest commodity exporters in the world, and given its mineral potential and expected commodity price trends, it could and should expand its leading position. Commodities accounted for one fourth of Indonesia's Gross Domestic Product (GDP) and more than one fifth of total government revenue in 2007. The potential for further commodity growth is considerable. Indonesia is the largest producer of palm oil in the world (export earnings totaled almost US$9 billion in 2007 and employment 3.8 million full-time jobs) and the sector has good growth prospects. It is also one of the countries with the largest mining potential in view of its second-largest copper reserves and third-largest coal and nickel reserves in the world. This report consists of seven chapters. The first six chapters present an examination and an analysis of the factors driving increased commodity prices, price forecasts, economic impact of commodity price increases, effective price stabilization policies, and insights from Indonesia's past growth experience. The final chapter draws on the findings of the previous chapters and suggests a development strategy for Indonesia in the context of high commodity prices. This section summarizes the contents of the chapters and their main findings.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.