Fiscal Policy in the Crisis

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# Fiscal Policy in the Crisis - PowerPoint PPT Presentation

Fiscal Policy in the Crisis. The Keynesian Perspective Multipliers Ricardian Equivalence The Run-up to the Crisis Response to the Crisis Did it work? Was it worth it? The Future of Fiscal Policy Exit Lessons from the Crisis. The Keynesian Multiplier.

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Presentation Transcript
Fiscal Policy in the Crisis
• The Keynesian Perspective
• Multipliers
• Ricardian Equivalence
• The Run-up to the Crisis
• Response to the Crisis
• Did it work?
• Was it worth it?
• The Future of Fiscal Policy
• Exit
• Lessons from the Crisis

### The Keynesian Multiplier

Y = c (Y – t(Y) – T) + I + G + X – M

dY/dG = 1/(1-c+ct) dY/dT= -c/(1-c+ct)

(y1 - t1 - c1) (1 + r) + (y2 - t2 - c2) = 0

(g1 - t1) (1 + r) + (g1 - t2) = 0

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(y1 - c1) (1 + r) + (y2 - c2) = t1 (1 + r) + t2

(G) g1 (1 + r) + g2 = t1 (1 + r) – t2

### RicardianEquivalence

Run-up to the crisis

Debt in percent of GDP

Source: OECD Economic Outlook Database.

Position before the crisis, 2007

Source: OECD Economic Outlook Database.

Position after the crisis, 2010

Source: OECD Economic Outlook Database.

Government debt, 2012% of GDP

Source: OECD Economic Outlook Database.

Estimated consolidation needs

Difference between debt-control and baseline underlying primary surplus

% of potential GDP