Best Fiscal Policy Approaches
However, this can be resolved by targeting consumers in dire need of liquidity and homeowners facing foreclosures (both an agreggate demand and a financial stability effect). As for expenditure targeting firms, subsidies may lead to trade retaliation through perception of an unfair competition environment within the country, however guaranteeting loans may create faster credit growth and boost investment and thus is more likely to be a good policy choice (Spilimbergo et al, 2009). With uncertainty concerning the specific multipliers of policies though, one may take a diversified policy approach to ensure it is at least to some degree efficient (Cotarelli, 2009).
In conclusion, most crisis in the previous crisis faced the decision of choosing the best fiscal policy measures. Often too little, too late and at a large cost in terms of their debt-to-GDP ratio. Considering the pain of fiscal tightening faced by many states, it is increasingly important to ensure that budget deficits come with a sizable boost to the economy and hence careful targeting of fiscal policy is more important than ever.
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