Fiscal Policy and Financial Crises – What Are the Actual Effects of Fiscal Policy?

Abstract

The actual effects of a change in fiscal policy on the real economy will be influenced by the choice of fiscal policy instrument, cyclical conditions, fiscal policy credibility and fiscal leeway. The article discusses the extent to which the fiscal policy measures implemented in response to the financial crisis have had the intended effects on the real economy. It is too early to draw conclusions about the long-term effects, but there appears to be no doubt that fiscal policy measures have had short-term effects and prevented a sharp drop in demand in many countries.