"Taiwan to hand out shopping coupons to boost economy: PM"

Financial Times columnist Lucy Kellaway once wrote, “No management idea is too ridiculous not to be tried in practice.” That observation may apply to economic ideas as well.

Just last week, when discussing economic stimulus programs, I stressed that to be effective, they needed to lead to consumption. If, as with the tax rebates of last summer, stimulus packages are used to reduce debt, it doesn’t help economic output.

A reader then suggested that the government distribute Wal-Mart discount coupons, although I jokingly noted even those could be hoarded and used as an alternative currency.

Someone in Taiwan is apparently thinking along similar lines. From AFP (hat tip reader Razzz):

Everyone in Taiwan will be given more than 100 US dollars in shopping vouchers in a government bid to boost the economy amid the global credit crisis, the prime minister announced Tuesday.

Under the scheme, the island’s 23 million people regardless of age or wealth will be given 3,600 Taiwan dollars (109 US)…those people who donated their coupons would be able to file for tax deductions.

It is expected to be implemented as early as January in time for the Lunar New Year holidays which will begin on January 26.
“The programme is aimed at boosting the economy … and is expected to contribute to a 0.64 percent increase in 2009 GDP,” Liu said.

Taiwan’s gross domestic product growth is projected at 5.08 percent for 2009 according to government figures, after an estimated 4.30 percent for 2008.

However, analysts and businessmen were more sceptical.

“I can’t see that the programme will have much impact on the GDP. If people can’t make their ends meet, they won’t be encouraged to spend more just by getting the vouchers,” said Johnny Lee, an analyst at President Securities…

The vouchers, which will expire in December 2009, can be used at registered retail stores, supermarkets and restaurants, officials said.

The scheme, proposed by the island’s top economics planning body, the Council for Economic Planning and Development, is based on a similar initiative launched by Japan in 1999…

October exports, the engine of the economy, fell 8.3 percent from a year earlier, largely on falling demand for electronic and precision products amid the global economic slump.

The figures, together with an updated IMF forecast, prompted Taiwan’s central bank to further lower interest rates by 25 basis points last week — the fourth cut in just over a month.

The International Monetary Fund earlier this month predicted that advanced economies — major export markets of Taiwan — would shrink next year under pressure from the global credit squeeze, forcing a new round of European interest rate cuts.

The government lowered its economic growth forecast for 2008 to 4.30 percent from 4.78 percent, but an increasing number of economists and analysts regard the revision as too optimistic given the current economic turmoil.

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10 comments

  1. Anonymous

    I think it’s possible we might see this in the US, the so called “nuclear option” as described in “The Economist” recently:
    http://www.economist.com/displaystory.cfm?story_id=12510859

    “The nuclear option, conceived in America but untried in Japan, is to finance public spending or tax cuts by printing money. This requires the central bank to go along with the fiscal authorities (which may prove easier in America than in Europe). It could work like this: the government announces a tax rebate and issues bonds to finance it. But instead of selling them to private investors, it lodges them with the central bank in exchange for a deposit. It draws on this account to clear the cheques mailed to taxpayers. This scheme is essentially the same as the proverbial “helicopter drop” of money, but with neater accounting and a less erratic distribution of cash. It bypasses banks and money markets, and puts money directly into people’s pockets. “

    Using this method to give consumers vouchers (maybe with a 1 year duration) could force consumption. If the consumer still had a job, they could use wages to pay down debt and vouchers to stimulate the economy. Would probably lead to extreme inflation.

  2. Viv

    Well I do hope the Nuclear option doesn’t get utilized. If printing money was the way out than Zimbabwe would be the worlds richest country. The US must replenish its savings rate to 10%. It might be harmful in the short run but over the long run savings are essential.

  3. FairEconomist

    Where do people get the idea that if the central bank prints any amount of money we get a Zimbawean/Weimer hyperinflation? Hyperinflation requires very deliberate actions on the part of the central bank – starting with, literally, a lot more printing facilities.

    Moderate inflation is a great insurance against a liquidity trap, which is a serious concern. It also spreads the cost of the downturn so that some falls on the holders on currency instruments, which is fair and wise with costs like what we face.

  4. A Taiwanese

    Some people already think to sell them online for cash. Coupons requires extra cost in printing them which costs about 2.9 billion Taiwan dollar. And government needs to borrow money somewhere. It is ridiculous! Personally as a Taiwanese I prefer tax rebate.

  5. Germán

    In Europe at least a VAT temporary suspension could be tried. I think it would be very effective: limited in time (people would rush to buy stuff before it expires), fiscal in nature, cheap & easy to implement and benefiting durable goods since food rates tend to be much lower… just my two cents

  6. Anonymous

    You gotta thank the Taiwanese for thinking up the dumbest stimulus package known to man. Kayne must be laughing in his grave right now.

    The those that say money printing will solve deflation, are ya mad? Inflation and deflation can occur at the same time on different asset classes. So while consumer spending is decreasing, commodity prices could be increasing. So while the investor could see deflation in stock and real estate values. The common man will see hyperinflation in buying daily necessities.

  7. Anonymous

    There is no need to use vouchers as an alternate currency or go thru the trouble to sell them for cash….so dramatic! Shopping vouches can simply be used to purchase essentials (food, clothing, etc.) that would have been purchased anyway. And if consumers are already in the bargin mindset, they wouldn’t even have to be deliberate about that focus as it would already be naturally embedded.

  8. Anonymous

    How about goverment pre-payed credit cards, only good for value added products, made by our over seas friends. Mabe one for morgtages too. We don’t want them spending it on food or paying down debt now do we?

    Skippy

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