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Automatic fiscal stabilisers in the euro area and the COVID-19 crisis

Othman Bouabdallah, Cristina Checherita-Westphal, Maximilian Freier, Philip Muggenthaler, Georg Müller, Carolin Nerlich and Kamila Sławińska
Authors registered in the RePEc Author Service: Cristina Checherita Westphal

Economic Bulletin Articles, 2020, vol. 6

Abstract: Fiscal policy is playing a key role in stemming the economic fallout from the coronavirus (COVID-19) pandemic. In addition to the discretionary fiscal policy measures employed by governments, automatic fiscal stabilisers play an important role in cushioning the economic downturn. This article shows that automatic fiscal stabilisers are generally sizeable in the euro area, but vary significantly across Member States. However, their effectiveness may be more limited at the current juncture, given the nature of the COVID-19 crisis and the high uncertainty surrounding its effects. This provides a rationale for a stronger role of discretionary fiscal policy at national and European level. Over the medium term, fiscal policies could increasingly make use of quasi-automatic fiscal instruments that provide additional timely, targeted and temporary macroeconomic stabilisation for the euro area. Careful consideration should be given to the design of such instruments over the business cycle, their economic efficiency, and to the need for building fiscal buffers in good times. JEL Classification: H12, H20, E63

Keywords: Automatic fiscal stabilisers; COVID-19 crisis; Euro area (search for similar items in EconPapers)
Date: 2020-09
Note: 2679249
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