Lessons From the Recession: Lesson 5—Sound Fiscal Policy Is Key to Keeping the Economy Afloat in Hard Times

A sound fiscal framework can play a vital role in supporting strong economic performance, not only in the good times, but also when recession hits. Ironically, the after-effects of a recession provide a climate that is ripe for fiscal reform. However, few countries have so far moved to seize the opportunity by implementing sound policies aimed at long-term fiscal sustainability. Canada weathered the recession better than most other developed countries. Fiscal policy can take at least some of the credit for that success, particularly by helping to close the output gap moving forward as the large fiscal stimulus package ramps up. Lesson 5—Sound Fiscal Policy Is Key to Keeping the Economy Afloat in Hard Times argues that, along with a highly accommodative monetary policy, fiscal stimulus mitigated the worst of the recession in Canada.