Question

1. Below is a selection of measures directed at stimulating incomes and confidence and alleviating liquidity crunches. Some of them have already been implemented, mostly in the ground zero of Asia and in Italy.

Targeted measures: Healthcare/confidence

Pay bonus for health care workers (Singapore)

One-month salary donated by political leadership in solidarity (Singapore)

Provide a small amount of face masks to all households (and discourage them from using them as long as they are healthy) (Singapore)

Targeted fiscal measures: Households

Cash payout to every citizen above 18 years of age of more than US$1,000 (Hong Kong)

Suspension of payments for electricity in affected areas (Italy)

Support for uninsured households for medical expenses

Targeted measures: Firms

Subsidised short-term employment schemes for (Germany)

Accelerated depreciation for firms (Germany)

Sector-specific financial support for tourism, accommodation and aviation (Singapore)

Broad-based financial help for businesses, including enhanced absentee payroll support for workers (Singapore)

Reduction in profit tax and low interest loans for small and medium-sized firms (Hong Kong)

Targeted measures: Monetary/banking

Targeted liquidity provision bank funding conditioned on bank lending to small (ECB, TLTROs)

Liquidity support to banks

General fiscal stimulus package, large and coordinated at G20/EU level

Emergency tax reductions

Suspension of payments of social security

Increase spending

Relax fiscal criteria for affected countries in the EU

General monetary stimulus package, coordinated at G20

Cut rates (Fed, Bank of Canada, etc.)

Quantitative easing

Global/regional disaster insurance/ emergency funding

US$50 billion emergency lending (IMF)

Scale IFC/EBRD facility to fund private sector in countries affected by the virus (World Bank)

Scale up the EU Solidarity Fund to include health related disasters (Proposal)

1. From the above measures which are the ones related with fiscal policy?
2. Related with your answer to (a), chose 3 of this measures and explain the effects of this measures on national income (30 points)
3. Which of them are used in Turkey?

Answer 1

a. The two primary and main tools or instruments of fiscal policy undertaken by the government in any country includes tax policies and government spending or expenditure. In this case, the emergency tax reduction or cut under the general fiscal stimulus package at the G20/EU level represents a contractionary tax or an expansionary fiscal policy to stimulate aggregate consumption expenditure or spending on goods and services as part of the objective to increase aggregate demand and assist the business organizations and commercial firms or companies during economic downturn or slowdown. An increased overall government spending, suspension of social security payments for the G20/EU region, cash payout or financial assistance to the citizens above 18 years of age in Hong Kong, fiscal support to the uninsured households for medical expenses, abandonment of public electricity payments for the affected areas in Italy are all essential parts of the government expenditure or spending plans, primarily targeted towards ensuring short-term economic stability and long-term sustainable economic growth in the respective countries or nations in the world.  

b. The tax reduction or cut implemented under the consolidated fiscal stimulus package at the G20/EU level ideally represents an expansionary fiscal policy measure primarily to stimulate the aggregate consumption expenditure or spending in the concerned area or region by raising the disposable income of the individuals and households thereby leading to an increase in the aggregate demand in the EU region. Reduction or relaxation in business or commercial tax rates would also encourage higher business and capital investment by private firms or companies. Now, holding everything else constant, an increase in the aggregate demand in the goods market in the EU region due to the emergency tax reduction would lead to a rise in the real GDP/output or income level in the goods market and the economy in the EU region. The higher government or fiscal spending or expenditure in the EU/G20 region would also have the same effect on the real income or output level of the region as higher government or fiscal spending would raise the aggregate demand in the EU goods market and the economy thereby increasing the real output or income level in the goods market and the economy as a whole, again considering everything else as constant. Similarly, the fiscal support provided to the uninsured households as part of the medical expenses following the outbreak of COVID-19 also constitutes an expansionary fiscal policy characterized by increased fiscal spending or expenditure by the government which would have a positive impact on the aggregate demand and the real income or output level in the concerned country or region.

c. Following the pandemic or COVID-19 outbreak and the overall economic downturn at the national level, the Turkish government has implemented a significant tax reductionist policy implied by a staggering reduction in the tax rate from 18% to 1% especially on VAT on domestic airlines. Tax relief and credit have also been implemented on other industrial sectors such as the hospitality and tourism and automobile industry. Furthermore, the government has also increased fiscal spending or expenditure to stimulate the general developmental and public infrastructure and commercial growth in the country mainly focusing on road and highway construction, the economic recovery of many of the local businesses and industries affected by the economic slowdown following the viral outbreak, providing financial assistance to the workers and laborers who have been severely affected by the national economic downturn either because of rising unemployment or significant wage or salary cut. Additionally, the Turkish government has also postponed or deferred the social security payments pertaining to various industrial sectors such as hospitality and tourism, retail, textiles, food and beverage, entertainment, and automobile industries as part of the overall or general fiscal relief program or stimulus following the recent economic downturn impelled by COVID-19 outbreak.

Reference

https://www.designbuild-network.com/comment/turkey-fiscal-monetary-coronavirus/