This time truly is different: The cyclical behaviour of fiscal policy during the Covid-19 crisis

https://doi.org/10.1016/j.jmacro.2023.103522Get rights and content
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Abstract

Fiscal policy was more countercyclical during the Covid-19 crisis than in previous (crisis) episodes. This paper presents empirical evidence in favour of a “this time truly is different” moment based on analysing the cyclical behaviour of fiscal policy for 28 advanced economies over 1995–2021. Discretionary fiscal policy during the Covid-19 crisis (2020–2021) did more to counteract the downturn – especially in the Eurozone –, as we do not find comparable evidence for countercyclicality during the financial crisis or Euro crisis. Automatic fiscal stabilisers, the non-discretionary domain of fiscal policy, significantly contributed to countercyclical stabilisation during the pandemic.

JEL classification

E62
H11
H61

Keywords

Fiscal policy
Covid-19 crisis
Financial crisis
Euro crisis
Automatic stabilisers
Discretionary fiscal policy

Data availability

Data will be made available on request.

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