Assessing Fiscal Policy Effectiveness on Household Savings in Hungary, Slovenia, and the Czech Republic during the COVID-19 Crisis: A Markov Switching VAR Approach

Tuhin G M Al Mamun

Papers from arXiv.org

Abstract: The COVID-19 pandemic significantly disrupted household consumption, savings, and income across Europe, particularly affecting countries like Hungary, Slovenia, and the Czech Republic. This study investigates the effectiveness of fiscal policies in mitigating these impacts, focusing on government interventions such as spending, subsidies, revenue, and debt. Utilizing a Markov Switching Vector Auto regression (MS-VAR) model, the study examines data from 2000 to 2023, considering three economic regimes: the initial shock, the peak crisis, and the recovery phase. The results indicate that the COVID-19 shock led to a sharp decline in household consumption and income in all three countries, with Slovenia facing the most severe immediate impact. Hungary, however, showed the strongest recovery, driven by effective fiscal measures such as subsidies and increased government spending, which significantly boosted both household consumption and income. The Czech Republic demonstrated a more gradual recovery, with improvements observed in future-oriented consumption (IMPC). In conclusion, the study underscores the critical role of targeted fiscal interventions in mitigating the adverse effects of crises. The findings suggest that governments should prioritize timely and targeted fiscal policies to support household financial stability during economic downturns and ensure long-term recovery.

Date: 2025-03
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