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American Economic Review Vol. 102 No. 3 2012

Fiscal Policy in a Financial Crisis: Standard Policy versus Bank Rescue Measures

Robert Kollmann1; Werner Roeger2; Jan in’t Veld2

1 ECARES, Université Libre de Bruxelles, Université Paris-Est and CEPR; ECARES, CP 114, ULB, 50 Av. Roosevelt, B-1050 Brussels, Belgium. · 2 DG-ECFIN, European Commission, B-1049 Brussels, Belgium.

Abstract

A key dimension of fiscal policy during the financial crisis was massive government support for the banking system. The macroeconomic effects of that support have, so far, received little attention in the literature. This paper fills this gap, using a quantitative dynamic model with a banking sector. Our results suggest that state aid for banks may have a strong positive effect on real activity. Bank state aid multipliers are in the same range as conventional fiscal spending multipliers. Support for banks has a positive effect on investment, while a rise in government purchases crowds out investment.

DOI
10.1257/aer.102.3.77
Volume
102
Issue
3
Pages
77-81
Language
en
Sources
bibtex:phds-export.bib crossref openalex

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