Sweden joined the party yesterday, announcing an 8.3 billion kronor package (S$1.5 billion) while German politicians also approved the ¥32 billion (S$62 billion) stimulus package unveiled last month.

So far, more than US$1 trillion (S$1.5 trillion) has been pledged by various countries in a bid to jumpstart their flatlining economies.

China has targeted the cash at building infrastructure like roads or hospitals to create jobs while Japan and Taiwan are bidding to directly stimulate consumer spending by handing out cash vouchers.

Of course, they can also throw in the kitchen sink, with tax cuts, aid to states and construction projects, as the US is considering.

In more developed countries, tax cuts or cash vouchers aimed at lower-income consumers who are more likely to spend the extra cash could not only stimulate spending but provide them much-needed relief from the recession.

But stimulus packages are not a cure-all that can make all the pain go away.

They do not have an immediate impact on the economy because of lags and leakages in the system. Indeed, it can take months to even a year before the effects of spending are felt in the economy, economists say.

For infrastructure projects, Barclays Capital economist Leong Wai Ho said that 'the larger the building programme, the slower its implementation. You need to cost it, do feasibility studies and consider the environmental impact of the project among other things'.

As well, putting cash in the hands of consumers will not be effective if they opt to save, not spend.

Mr Leong said: 'This could stimulate private consumption, but the effects will be short-lived, especially at a time when consumers are so risk averse.'

Germany found that after it guaranteed all personal savings accounts, households started saving even more.

Or consumers could spend their cash on imports rather than domestic products, something that happens in open economies like Singapore.

The size of a stimulus package is also much debated. Most so far have amounted to between 1 and 2 per cent of gross domestic product. Japan's plan reaches 2 per cent and could increase while China's massive 4 trillion yuan (S$886 billion) package constitutes some 15 per cent of GDP.

There is no consensus on how much should be spent, but countries that do not have large deficits could fund larger packages, say economists.

However, there is a risk for countries that are running large balance of payments, current account or trade deficits. Running consistent deficits may eventually translate to plunging currency or soaring inflation.

They will have had to issue bonds or print money to pay for their stimulus packages. The more they do this, the more the value of their currency drops. Increasing the money supply will also push up prices - and fuel inflation.

HSBC's Robert Prior-Wandesforde warns that the bond market will be at risk in the long run with many countries likely to issue bonds to fund their deficits.

And in the long run all this fiscal spending will have to be reversed at some point, and at the expense of the taxpayer. For governments that stand for election, this is not always easy to do.

chanckr@sph.com.sg