This time is different: Fiscal response to the COVID-19 pandemic among EU countries

Bettina Bökemeier and Marcin Wolski

International Economics, 2022, issue 172, 217-226

Abstract: 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.

Keywords: COVID-19 pandemic; Discretionary fiscal policy; New Member States; Counter-cyclical policies; Fiscal rules (search for similar items in EconPapers)
JEL-codes: E62 O52 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:cii:cepiie:2022-q3-172-14

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