Economic Stimulus Package Research Articles

The Financial Crisis in Wenzhou: An Unanticipated Consequence of China's "Four Trillion Yuan Economic Stimulus Package"

The Financial Crisis in Wenzhou: An Unanticipated Consequence of China's "Four Trillion Yuan Economic Stimulus Package"

Government intervention and firm investment

This paper examines how government intervention affects firms' investment and investment efficiency, focusing on the world's largest economic stimulus package (ESP) during the 2008 global financial crisis period. The RMB four trillion ESP aimed to restore the economy by promoting investment in priority areas. Thus it provided an exogenous shock to firms' investment environment and exacerbated the impact of government intervention on firms' investment and investment efficiency. We use propensity score matching to match government-intervened firms with their controls to reduce the endogeneity issue of government intervention. Our difference-in-differences analysis shows that government-intervened firms invested more than control firms. Further analysis shows that the source of funding for investment was mainly from bank loans rather than internal cash flows. However, the post-investment performance was poor. We find that the investment efficiency of government-intervened firms decreased and government-intervened firms overinvested after the ESP. Our results are robust to alternative model specifications and placebo tests. The findings suggest that government intervention can play a negative role in government-intervened firms.

America's First Economic Stimulus Package: Paper Money and the Body Politic in Colonial Pennsylvania, 1715–1730

ABSTRACT From 1715 to 1730, Pennsylvania's provincial legislature passed economic reform that transformed the colony into an enviable commercial center. Provisions enacted included liquor duties, flour inspection laws, and feme sole statutes, but the crowning achievement was a public loan office that issued loans to farmers in the form of paper money. Historians have shown how the Pennsylvania General Loan Office improved business conditions in the colony following an economic depression. Scholars have paid less attention to the implications of financial innovations such as paper money for economic thought and culture conceived broadly in early America. Using Pennsylvania as a case study, this article argues that paper money issued by public land banks in the British colonies not only improved colonial economic conditions, but also formed the basis of a fiscal and constitutional order founded on legislative control over local currencies and an extrinsic notion of value that pegged economic worth to the provincial community.

Laissez-Colbert

The Colbert Report combines comedic entertainment and current events, two pedagogical sources that have the potential to increase student interest in classes and improve student learning. This article offers suggestions on the use of segments from The Colbert Report to teach introductory macroeconomics. Segments are included that relate to comparative advantage, supply and demand, externalities, GDP, unemployment, classical versus Keynesian theory and the Great Depression, fiscal policy and economic stimulus packages, monetary policy and the Federal Reserve, money, taxes, and foreign aid. Guidance is provided regarding the use of the clips in an introductory macroeconomics class.

To what extent did the economic stimulus package influence bank lending and corporate investment decisions? Evidence from China

Using a panel of Chinese firms over the period 2003–2013, we show that, from the supply-side perspective, as a result of the implementation of the economic stimulus package in China, state-owned enterprises (SOEs) received more bank loans and invested more than non-SOEs. We further find that after the implementation of the economic stimulus package, bank lending became less responsive to firm profitability, and firm investments became less responsive to investment opportunities for SOEs, non-SOEs from favoured industries and regions, and non-SOEs with political connections. Overall, our findings support the view that the stimulus package and the associated increase in bank loan supply in China resulted in more resources being allocated to SOEs.

Stabilization Policies and Long Term Growth: Policy Implications from an Agent-Based Macroeconomic Model

Do fiscal stabilization policies affect the long-term growth of the economy? If so, are the long-term effects growth-enhancing or growth-reducing? These questions have again become relevant to the political and academic debate since governments have been forced to spend considerable funds for economic stimulus packages as a response to the recent economic crisis. The answers provided by the economic literature are inconclusive. But a general observation is that, while the theoretical literature has emphasized the importance of structural issues as, e.g., the modeling approach of endogenous technological change, less attention has been paid to an elaborate design of the considered fiscal stabilization policies. This paper uses a closed agent-based macroeconomic model that generates endogenous business cycles to emphasize the role of the policy design for long-term growth effects of stabilization policies. By comparing a demand-oriented consumption policy and two different investment subsidizing policies, we can show that the considered policies are equally successful in smoothing the business cycle, but have different implications for the medium and long-term growth of the economy. Hence, not only modeling assumptions as stressed by the literature but also the concrete implementation of the policy seems to be important for the analysis of long-term effects of stabilization policies.

The treatment-effect estimation: A case study of the 2008 economic stimulus package of China

Researchers often face the challenge of estimating the counterfactuals to evaluate the treatment effects. Hsiao et al. (2012) propose a method that offers more flexibilities by allowing the influence of the unobservable latent factors to vary cross-section. This paper relaxes the linear conditional mean assumption in their method by extending it to a semi-parametric setting. The asymptotic distribution properties of the average treatment effect estimator is derived and studied. The semi-parametric model and the Hsiao et al. (2012) are both applied to study the macroeconomic effect of the 2008 Chinese Economic Stimulus Program. The estimation results show the fiscal stimulus plan had raised the annual real GDP growth in China by about 3.2%, but only temporarily. These results are robust to linear setting, semiparametric setting, and various control group selections. The temporary boost in economic activities of the stimulus plan is also evident in the estimation of other economic indicators such as real investment, real consumption, real export, and real import.

Social impacts of the Global Financial Crisis on China and its policy initiatives

The Global Financial Crisis has brought eminent, negative economic and social impacts on China since late 2008, including a considerable decline in GDP growth and a rapid rise in unemployment. Drawing on the published literature and official statistical data, this paper examines the social consequences of the Global Financial Crisis in China, explores various policy initiatives taken by the Chinese government and assesses the effectiveness of these policy initiatives. It argues that the Global Financial Crisis has led to high levels of enterprise bankruptcy and job losses in China. Rural migrant workers and new university graduates are the two social groups most adversely affected. The economic stimulus package and expanded social programmes tend to be short term and economic oriented. Whether the policy initiatives have been effective in mitigating the social impacts of this crisis and correcting the structural imbalance of China's economy is unclear. The paper concludes by suggesting that a new policy approach should be taken to timely and effectively address the negative social impacts of the Global Financial Crisis on China, in particular by providing a more inclusive and comprehensive social safety net, prioritizing employment generation, and addressing housing deficits.

China's Banking: How Reforms Lost Momentum

This paper investigates China’s pattern of decade-plus delays in implementing banking reforms. It identifies the ideological factors involved, particularly the persistent suspicion of 'market forces' as the economy’s driving force. The dependence on the banks to finance the economic and social costs of the retreat from state planning is traced, together with the costs to the banks of funding such urgent national programmes as the 2008 economic stimulus package and the current affordable housing drive. The paper argues that liberalisation of the banking industry will continue to be limited because of the banks’ role as the national leadership’s last surviving lever of control over policy implementation after the demise of the command economy.

Does the Economic Stimulus Package Stimulate Firm Investment and Improve Investment Efficiency? Evidence from China

The Economic Stimulus Packages which was introduced in response to the recent global financial crisis has been debated vigorously for its implications for economic efficiency. Using Chinese firms in the period 2003-2013 from the supply side perspective, we show that with the implementation of an economic stimulus package in China, state-owned enterprises (SOEs) receive more bank loans and invest more than non-SOEs. We further find that the economic stimulus package distorts bank lending decisions and reduces firm investment efficiency of SOEs, non-SOEs from favoured industries and regions, and non-SOEs with political connections. Our findings are robust to event study analysis, controlling for bank-level unobserved heterogeneities, and other robustness tests. Overall, our findings support the view that the stimulus package and the associated increase of bank loan supply in China results in a resource misallocation to SOEs, so that resources are invested inefficiently, that is, the stimulus package stimulated investment by SOEs and crowded out investment by privately owned sectors.

Crisis-Induced Social Conflicts in the European Union – Trade Union Perspectives: The Emergence of ‘Crisis Corporatism’ or the Failure of Corporatist Arrangements?

This paper aims to explore the role of labour and trade unions in the repeated shifts of crisis phenomena over the past years. It addresses the question why, confronted with the very profoundness of the crisis, they have failed to develop politically relevant and socially progressive strategies so far. The presented argument not only refers to structural power relations but in particular to the political struggles and processes in which more far-reaching ambitions have been knocked into shape. In that context, the focus is above all on economic stimulus packages, financial market regulation, and current budget consolidation. The paper will be organised as follows: It will start with some general problems of trade unions in generating sufficient power and organisational capacities against the background of the unfolding crisis within the European Union (EU). The next section empirically highlights these developments by discussing the cases of Germany, France, and Spain. The paper then concludes highlighting common challenges and chances, but also the difficulties to form new progressive European alliances.

Keynes, Bastiat and the Multiplier

Keynes is back. President Obama’s economic stimulus package is based on the premise that we can spend our way out of recession. It is an application of the Keynesian multiplier theory, which was expounded in Keynes’ 1936 economic treatise, The General Theory of Employment, Interest and Money. Post-1936 economic history has given the multiplier theory mixed reviews, mostly because it has done a less than perfect job of explaining economic reality.Frederic Bastiat (1801-1850) was a French economist and journalist. He discussed the multiplier theory in the 1840s, more than a generation before John Maynard Keynes (1883-1946) was born. This paper explores the similarities and differences of their two multiplier theories. A bibliography with links to other Bastiat studies is also included.

National Economics

With the slow recovery from the Global Economic Recession that began in 2008 and its lingering high unemployment in the United States and Europe, in spite of the best efforts of governments and central banks to remedy it, it may be helpful to suggest some adjustments in current economic thinking.One adjustment may be found in the introduction of National Economics, in addition to macro and micro-economic theory, to better engage issues of free trade, the international outsourcing of manufacturing and research and development known as globalization, protectionism, Chinese mercantilism, and national investment policies, which may accompany the preparation of economic stimulus packages.While free trade is generally acknowledged as a positive factor in contributing to economic growth, it has been used by mercantilists, both countries and corporations, as a cloak to achieve a National Income redistribution to enrich themselves at the expense of reducing employment, and wages and salaries within a country, and to substitute poorly made or low quality goods for goods of better quality. One issue of National Economics that stands to be addressed is the contribution of Chinese mercantilism to the Global Economic Recession and its effect on unemployment rates. A major trading partner with the United States, Europe, and other countries, China uses a substantially undervalued currency compared to the U.S. dollar to increase its export of manufactured goods and economic growth rate, while suppressing the manufacturing sector in its trading partners. Within many countries, large trade imbalances with China play a role in the distribution of National Income by depressing employment, wages, salaries, and investment. While mercantilists claim that these reductions in employment, wages, and salaries are offset by the proliferation of inexpensive Chinese goods, low quality goods do not compensate for reductions in employment and investment. A second issue of National Economics that stands to be addressed, at least within the United States, is the need to prepare economic stimulus packages that represent a balance of new spending along with adjustments in entitlement programs and a reworking of the current regulatory environment, which policymakers use to reward corporate dinosaurs and financial manipulators, while the constrict the ability of small banks and lending institutions such as credit unions to make consumer loans and finance mortgages, with the effect of repressing the nation's economy. Finally, some thoughts are given regarding the effect of Chinese mercantilism on Taiwan's economy, and Japan's effort to renew its economy.

English

This paper focused on consumer demand system of agri-food in Tanzania. The study investigated on the budget share of agri-food, estimated own price and income elasticities of demand of agri-food consumed by the households in Tanzanian context. The Almost Ideal Demand System (AIDS) was employed to estimate the consumer demand system of agri-food. The empirical results revealed that households’ food budget share was 60% on average per month. The own price elasticity of demand for aggregated agri-food was inelastic (0.86). Income elasticity of demand for aggregated agri-food was 0.96. Moreover, inelastic demand of own price elasticity of agri-food products informed the government intervention in terms of agri-food price stabilization policies and programmes. Furthermore, income elasticity of < 1 suggested that interventions of Tanzanian government in terms of ‘income support policies’ can be done by increasing the incomes of lower and middle class income earners in rural and urban areas as consumers’ economic stimulus package to increase normal food consumption. In rural areas where majority of farmers dwell, this can be done by promoting the price of farm products through minimum support price so that farmers can earn much more incomes from their economic activities as a result they can use it for purchasing normal food from the business sector. Key words: Almost ideal demand system (AIDS), agri-food, consumer demand system, income and own price elasticities.

How photography as field notes helps in understanding the building the education revolution

This paper is the outcome of research conducted between June 2010 and January 2011 as part of understanding the building the education revolution (BER) a major policy initiative of the Australian Federal Government which commenced when Julia Gillard, now PM, was the Federal Minister of Education. The BER policy initiative was part of an economic stimulus package delivered in response to the global economic crisis. It saw funding distributed through State governments to schools to develop new learning spaces and facilities. In the Victorian context the timing of the BER came after years of research and development in learning space design and policy under the Victorian Schools Plan and the Building Schools for the Future policies. It outlines both the scope of the research projects undertaken by Deakin University’s Centre for Research in Educational Futures and Innovation with the Department of Education and Early Childhood Development, Victoria and the approach to using visual methodologies within these projects. The notion of the research as educational tourist is introduced in a discussion of using photographs as ethnographic field notes. As is often the case in such projects, timelines for research and delivery of research products is not always ideal for first wave rigorous analysis intended in the initial research proposals. In light of this the research team had generated, through researcher and participant photography, more data than could be reasonably dealt with. This paper explains the process and usefulness of photography as field notes to expedite research conversations and analysis in the writing of the case studies and construction of the portal. The construct of researchers as educational tourists is also theorised as a way of understanding how images mediate the ethnographically-informed research experience.

Excess Reserves, Unconventional Monetary Policy and the Consequences for Fiscal Stimulus Packages

Employing huge economic stimulus packages was a common response of many policy leaders during the past financial crisis. In Germany for instance, the government enacted two fiscal packages with an overall volume of approximately 80 billion Euros. On the other hand, the distortions in the banking sector led to an increase in the interest paid for loans, which called for central bank interventions. The resulting increase in the money supply was accompanied by an increased demand for government bonds as well as a sharp rise of the excess reserves. This paper introduces a DSGE framework to analyze the consequences of the enormous amount of excess reserves for a successful fiscal stimulus package. Our results suggest that these reserves may increase the fiscal multiplier in a non-negligible fashion.

Effect of Interest Rate Subsidies on Firm Performance and Investment Behavior during Economic Recession: Evidence from Vietnam

This paper aims to quantitatively evaluate the microeconomic consequences of the 4‐percent interest rate subsidy program, the main component of the Vietnamese Government's economic stimulus package in 2009, which was intended to assist recovery from the global economic and financial recession. Our analyses based on the Provincial Competitive Index 2009 survey and accounting data of firms listed on Vietnam's two stock exchanges show that firms that received subsidized loans were more likely to increase labor, to expand investment and to possess optimistic business plans. However, we find evidence that not all business activity generated by the stimulus led to productivity increases: a non‐trivial proportion of subsidized loans were not used to invest in production or expansion, but for speculative activities such as real estate and stock market trading.

Financial Crisis Fatigue? Politics behind Japan's Post-Global Financial Crisis Economic Contraction

AbstractDespite a relatively healthy financial sector, the Japanese economy contracted 6.3% in 2009 during the global financial crisis (GFC) after the Lehman shock, the starkest drop among the OECD countries. Since then, the Japanese economy has been slow to recover, although the Japanese government has implemented multiple economic stimulus packages with a high aggregate value.By tracing the Japanese government's response to the GFC in the critical months of October 2008 through the end of 2009, this study argues that the Japanese government failed to manage the crisis decisively due to institutional constraints derived, ironically, from the experiences that Japan gained from a series of financial crises in the 1990s and 2000s. Financial crisis fatigue constrained the supply of Japan's fiscal and monetary measures against the GFC and slowed political response. Furthermore, it made Japanese society unresponsive to these measures.

Gambling with Stimulus Payments: Feeding Gaming Machines with Federal Dollars

In late 2008 and early 2009 the Australian Federal Government introduced a series of economic stimulus packages designed to maintain consumer spending in the early days of the Great Recession. When these packages were initiated the media suggested that the wide-spread availability of electronic gaming machines (EGMs, e.g. slot machines, poker machines, video lottery terminals) in Australia would result in stimulating the EGMs. Using state level monthly data we estimate that the stimulus packages led to an increase of 26 % in EGM revenues. This also resulted in over $60 million in additional tax revenue for State Governments. We also estimate a short-run aggregate income demand elasticity for EGMs to be approximately 2.

Around the World

In science news around the world this week, an economic stimulus package pushes Japan's science spending to a record level, the European Food Safety Authority says pesticides threaten bees, delegates from 140 countries agreed to limit mercury pollution, and more.