Fiscal Stimulus and International Competition

Abstract

Fiscal policy is frequently viewed as a domestic policy area, with policymakers in each country making decisions independently of actions in other countries. The fiscal stimulus packages announced during the 2008-2009 global financial crisis provide an opportunity to examine international influence on fiscal policy. The case study of car scrapping schemes provides a micro-level account of international influence on the content of fiscal stimulus policies. Under conditions of uncertainty, politicians look for successful policies in other nations, but they judge success by visible results that satisfy politically important interest groups rather than economic efficiency or growth. The diffusion of fiscal stimulus policy occurs through learning, but governments also undertake coercion to shape policies that affect their economic competitiveness.

Keywords: fiscal stimulus, fiscal policy, policy diffusion