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This time truly is different: The cyclical behaviour of fiscal policy during the Covid-19 crisis
1Vienna Institute for International Economic Studies (wiiw), Austria.
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.
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