We may all be Keynesians now in terms of the public discourse,Â Â but governmentsÂ are mainly posturing rather than delivering.Â That strikes me as a fair summary of a technical and rather dismal discussion of fiscal stimulus packages by the OECD (Chapter 3 of the Interim Economic Outlook relased just before the London G20 Summit.)
The OECD calculate that the average GDP impact of fiscal stimulus packages in member countries will be just 0.5% of GDP in each of 2009 and 2010 – because few governemnts have announced very large packages, and because the ones that have been announcedÂ Â tilt heavily towards tax cuts which have small multiplier effects (and indeed go more to saving than spending. )Â That GDP impact is, to say the least, modest given huge output gaps opening up across the OECD area.
The Canadian package is reckoned to be one of the largest at 4.1% of GDP over two years, but it amounts to only 1.7% of GDP over two years in terms of spending (vs 2.4% in the US and 3.3% in Australia.) Canada’s package is judged to be heavily tilted towards relatively ineffective tax cuts (2.4% of GDP) , and Canada is judged to be one of those countries which could have done much moreÂ (a fairly stringentÂ judgment given strong OECD aversion to opening up structural deficits.)
From a progressive perspective, only social democratic Australia seems to have come close to doing what we have called for — significant stimulus tilted strongly towards public investment – and they seem set to have one of the mildest recessions in the OECD area.