International Economics

<< N°172

  N°172  
Issue Q3 2022  
This time is different: Fiscal response to the COVID-19 pandemic among EU countries  
Bettina Bökemeier
Marcin Wolski
 
This paper empirically analyzes fiscal policy behavior in the European Union (EU) Member States and assesses how it has changed during the recent pandemic crisis compared to previous crisis periods. Based on panel estimations, we find that the fiscal reaction has been different this time, both concerning the policy direction as well as its magnitude. We argue that fiscal policy has turned from formally pro-cyclical design prior to COVID-19 period to counter-cyclical in the pandemic years, on average. While this is naturally driven by the wide roll-out of fiscal support measures during the pandemic, including health care expenditures and spending on job security, the change in the fiscal reaction function is still visible if these effects are taken away from the budget, even though the move is less pronounced and signifies a change from a pro-cyclical to an a-cyclical fiscal regime.
Abstract

   
COVID-19 pandemic ; Discretionary fiscal policy ; New Member States ; Counter-cyclical policies ; Fiscal rules ; Keywords
E62 ; O52 ; JEL classification
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