The Politics of Fiscal Responses to the Crisis of 2008–2009

The national fiscal responses to the economic crisis of 2008/2009 varied considerably. Some countries reacted with a strong demand stimulus, others intended to slash public expenditures, while a third group pursued mildly expansionary policies. There are strong reasons for governments to pursue a mildly expansionary policy. If governments depart from this default strategy in favor of a significant counter‐cyclical policy, they must be able to swiftly make decisions. Therefore, effective use of counter‐cyclical policy will be unlikely in cases where lengthy negotiations or significant compromises between governing parties with different views on economic and fiscal policy are likely. Therefore, a major determinant of the expansionary strategy is a unified government, usually in form of a one‐party government. If governments opt for pro‐cyclical policy in a major economic crisis, they do so because they have few other viable options. In this situation they tend to shift blame to international organizations.