Expansionary Fiscal Policy

Canadian Federal Government Budget Cuts (1995)

Drastic fiscal consolidation measures initiated by the Canadian government to reduce budget deficits and national debt.

Context of the Canadian Budget Cuts

High national debt and significant budget deficits over 9% of GDP leading to drastic measures.

Program Review

A series of spending cuts across federal departments in Canada for budget consolidation.

Objectives of Canadian Budget Cuts

Eliminate the budget deficit, stabilize government finances, and reduce debt-to-GDP ratio.

Positive Economic Impact of Canadian Budget Cuts

Achieved a budget surplus by 1997 and reduced the debt-to-GDP ratio.

Negative Economic Impact of Canadian Budget Cuts

Resulted in public sector job losses, reduced services, and dampened aggregate demand.

Contractionary Fiscal Policy

A fiscal approach aimed at reducing budget deficits and stabilizing government finances.

Austerity Measures in Greece (2010-2018)

Severe austerity packages mandated during the Eurozone debt crisis to restore fiscal sustainability.

Troika

Refers to the IMF, ECB, and EC, who intervened in Greece during the debt crisis.

Measures Implemented in Greece

Cuts to public sector wages, pensions, tax increases, privatization of assets, and labor market reforms.

Objectives of Greek Austerity Measures

Restore fiscal sustainability, improve competitiveness, and regain investor confidence.

Negative Impact of Greek Austerity

Prolonged recession, high unemployment, social unrest, and humanitarian crisis.

Critiques of Greek Austerity

Argued to be pro-cyclical, worsening the recession due to reduced aggregate demand.

European Union Stability and Growth Pact (1997)

Established to ensure fiscal discipline among EU member states adopting the Euro.

Fiscal Targets of the Stability Pact

Deficits should be no greater than 3% and debt should not exceed 60% of GDP.

Preventive Arm of the Pact

Multilateral surveillance to warn countries of potential fiscal deviations.

Corrective Arm of the Pact

Initiated excessive deficit procedures that could lead to financial penalties for member states.

Reforms to the Stability Pact

Strengthened after the 2008 financial crisis with legislation enhancing surveillance and enforcement.

U.S. Budget Control Act (2011)

Legislation aimed at reducing national debt and persistent deficits post-Great Recession.

Statutory Caps on Spending

Limits imposed on discretionary spending for 10 years as part of the U.S. Budget Control Act.

Joint Select Committee on Deficit Reduction

Tasked with identifying $1.2 trillion in cuts or revenue increases over ten years.

Sequestration

Automatic, across-the-board spending cuts if the supercommittee fails to reach agreement.

Objectives of U.S. Budget Control Act

Address national debt concerns, reduce federal deficit, and prevent government default.

Economic Impact of U.S. Budget Control Act

Led to significant spending cuts and created policy uncertainty deterring investment.

Australian Government's Austerity Measures (2014-2017)

Proposed austerity measures to reduce budget deficits after the end of the mining boom.

Proposed Measures in Australia

Cuts to public services, welfare reforms, tax increases, and freezing foreign aid.

Challenges of Austerity in Australia

Public backlash and political opposition led to scaling back proposed cuts.

Fiscal Consolidation in Australia

Objective to return the budget to surplus and reduce future national debt.

Political Economy Challenges of Austerity

Demonstrates the difficulties of implementing austerity measures in a stable democracy.

Short-run Costs of Austerity

Increased unemployment and reduced aggregate demand due to spending cuts.

Long-run Benefits of Austerity

Fiscal sustainability and lower interest rates for private investment.

Debt-to-GDP Ratio

A key economic indicator showing the relationship between a country's debt and its GDP.

Public Sector Wages

Salaries paid by the government to employees in public services.

Investor Confidence

The level of trust that investors have in the economic stability and growth potential of a country.

Fiscal Multiplier

The ratio of a change in national income to the change in government spending that causes it.

Competitiveness within Eurozone

The ability of a country to attract investment and maintain economic growth within the Eurozone.

Automatic Spending Cuts

Mandatory reductions in government spending that occur without further legislative approval.

Humanitarian Crisis in Greece

A social emergency due to extreme austerity measures leading to high unemployment and social unrest.

Surveillance Mechanisms of the Pact

Protocols implemented to monitor adherence to fiscal rules and targets by member states.

Pro-cyclical Policies

Economic policies that worsen economic cycles, often through excessive cuts during downturns.

National Sovereignty within a Monetary Union

The challenges faced by countries in retaining fiscal control while adhering to collective monetary rules.

Economic Drag

Effects that slow down economic recovery due to reduced government spending.

Political Constraints on Fiscal Policy

Limits on government action regarding budget and spending issues due to political disagreements.