down private-sector non-ARRA-funded work, highlighting the fact that government spending was directly competing with private activity. The same researchers found that “rehiring of laid-off workers was rare,” with only 4.4 percent of their surveyed workers being rehired after a layoff. Almost half (47 percent) of the measured ARRA-created jobs were filled from the ranks of the already employed at other competing firms (Jones and Rothchild, 2020). Federal dollars also crowded out state and local project funding, by allowing recipient governments to decrease own-source funding on infrastructure and reduce debt issuances or fund other priorities.

The impact of the temporary value-added tax (VAT) cut has also been documented and found to be small and not be long-lasting. A prediction of Barrell and Weale (2009) indicates that a 2.5 percent reduction in VAT (from 17.5 percent to 15 percent) in the United Kingdom is likely to result in consumption being augmented by less than 1 percent by the fourth quarter to 2009. This contributes less than 0.5 percent to GDP compared to the case without the VAT increase. Moreover, after the temporary reduction is over, both consumption and GDP are depressed as a result of the policy.

In addition to tax reductions, fiscal stimulus packages in many countries consisted of transfers to households and expenditures on public works. Australia is such an example. As a part of stimulus, 21 billion household payments were delivered between December 2008 and May 2009, and 40 percent of households who received a payment spent it (Leight, 2012). This rate is high compared to the records in surveys assessing the 2001 and 2008 tax rebates in the United States and indicates that people are more likely to spend “bonuses” than “rebates”.

Giesecke and Schilling (2010) highlighted the importance of a package more targeted at employment promotion to increase the effectiveness of the fiscal stimulus. New Zealand’s fiscal stimulus package, for instance, largely comprised three policies: cuts to personal income taxes; cuts to business taxes; and increased infrastructure spending (0.3 percent of GDP for 3 years; 2009-2011). However, it had a small impact on employment – around 10,000 jobs- in the short-run, at a cost to long-run consumption (Giesecke and Schilling, 2010).

In sum, governments all over the world eventually introduced budget measures intended to provide fiscal stimulus to the economy, often including some component of infrastructure spending. However, the limited evidence available suggests that these measures met with only varying degrees of success. Table A1 in the Appendix provides more details of fiscal stimulus programs mainly discussed here.

# **3.4 Summary of Evidence on the Impact of Fiscal Responses to Major Macroeconomic Crises**

A comparison of the Great Depression of the 1930s with the Great Recession of 2008-2009, in the specific case of the US where more evidence is available, we can draw a few lessons.

First of all, resilient recovery requires smart policy decisions and balancing of sometimes conflicting objectives: accelerating shovel ready projects (to create and maintain employment in the short run) and spending on innovative programs (as part of the next wave of digital and resilience efforts). Within this context, the ARRA used a hybrid approach, differently from the fiscal stimulus used during the Great Recession. Some infrastructure funding went into preexisting programs. But ARRA also launched innovative digital programs such as the National Broadband Plan and Broadband Technology Opportunities Program as well as green programs (renewable generation, weatherization, and even new green financing models). Those innovative programs now serve as models for the next wave of digital and resilience efforts.

In terms of estimated results, the impact of federal grants during the Great Recession are mixed, with a stronger impact on consumption, and a negligible (sometimes even negative impact) on state per capita 22