Fiscal Policy Discretion, Private Spending, and Crisis Episodes

In this paper, we assess the impact of fiscal policy discretion on economic activity in the short and medium-term. Using a panel of 132 countries from 1960 to 2008, we find that fiscal policy discretion provides a net stimulus to the economy in the short-run and crowding-in effects are amplified once crisis episodes are controlled for– in particular, banking crises - giving a great scope for fiscal policy stimulus packages. However, crowding-out effects take over in the long-run – especially, in the case of debt crises -, in line with the concerns about long-term debt sustainability.Fiscal policy discretion, GDP growth, private consumption, private investment, crowding-in, crowding-out.

Fiscal policy discretion, private spending and crises episodes

In this paper, we assess the impact of fiscal policy discretion on economic activity in the short and medium-term. Using a panel of 132 countries from 1960 to 2008, we find that fiscal policy discretion provides a net stimulus to the economy in the short-run and crowding-in effects are amplified once crisis episodes are controlled for\u2013 in particular, banking crises - giving a great scope for fiscal policy stimulus packages. However, crowding-out effects take over in the long-run \u2013 especially, in the case of debt crises -, in line with the concerns about long-term debt sustainability

The impact of weather on COVID-19 pandemic

Rising temperature levels during spring and summer are often argued to enable lifting of strict containment measures even in the absence of herd immunity. Despite broad scholarly interest in the relationship between weather and coronavirus spread, previous studies come to very mixed results. To contribute to this puzzle, the paper examines the impact of weather on the COVID-19 pandemic using a unique granular dataset of over 1.2 million daily observations covering over 3700 counties in nine countries for all seasons of 2020. Our results show that temperature and wind speed have a robust negative effect on virus spread after controlling for a range of potential confounding factors. These effects, however, are substantially larger during mealtimes, as well as in periods of high mobility and low containment, suggesting an important role for social behaviour

Crises, Labor Market Policy, and Unemployment

Using a sample of 97 countries spanning the period 1980?2008, we estimate that financial crises have a large negative impact on unemployment in the short term, but that this effect rapidly disappears in the medium term in countries with flexible labor market institutions, whereas the impact of financial crises is less pronounced but more persistent in countries with more rigid labor market institutions. These effects are even larger for youth unemployment in the short term and long-term unemployment in the medium term. Conversely, large upfront, or gradual but significant, comprehensive labor market policies have a positive impact on unemployment, albeit only in the medium term

The rise in inequality after pandemics: Can fiscal support play a mitigating role?

Major epidemics of the last two decades (SARS, H1N1, MERS, Ebola, and Zika) have been followed by increases in inequality [Furceri et al. (2020), COVID Economics, 12, 138-157]. In this article, we show that the extent of fiscal consolidation in the years following the onset of these pandemics has played an important role in determining the extent of the increase in inequality. Episodes marked by extreme austerity - measured using either the government's fiscal balance, health expenditures, or redistribution - have been associated with an increase in the Gini measure of inequality three times as large as in episodes where fiscal policy has been more supportive. We survey the evidence thus far on the distributional impacts of the COVID-19 pandemic, which suggests that inequality is likely to increase in the absence of strong policy actions. We review the case made by many observers [IMF (2020), Fiscal Monitor; Stiglitz (2020), Finance & Development, Fall 2020; Sandbu (2020b), Financial Times, 26 November 2020)] that fiscal support should not be withdrawn prematurely despite understandable concerns about high public debt-to-GDP ratios

Keeping Public Debt Sustainable in an Equitable Way

The COVID-19 pandemic has claimed over 5 million lives thus far. This grim figure would have been higher still without the strong and timely fiscal support provided by governments around the globe, including support for health sector and the development and deployment of vaccines. The IMF has noted that “in 2020, fiscal policy proved its worth. The increasing public debt in 2020 was fully justified by the need to respond to COVID 19 and its economic, social, and financial consequences” (Gaspar, 2021). How to keep debt sustainable is becoming a policy imperative, made all the more challenging by the lingering effects of the pandemic, particularly on low-income groups. In this article we summarize our recent work on the distributional effects of past major epidemics in this century prior to COVID-19 and the role that fiscal support played in mitigating these effects (Furceri, Loungani, Ostry and Pizzuto, 2021a; 2021b). The policy message is that more inclusive and targeted fiscal policies are needed in coming years if governments wish to achieve public debt sustainability without exacerbating inequality