Fiscal policy for stabilization during the COVID-19 crisis: the role of social spending

This paper analyses whether government spending for social protection contributed more to counteracting the COVID-19 crisis than in previous episodes. Based on data for 27 EU countries over 1995-2021, we find that social spending is countercyclical and contributed to stabilization during the pandemic. However, we do not find evidence that overall social spending during 2020-2021 was more countercyclical then before. While unemployment spending played a particularly strong countercyclical role during the pandemic years 2020-2021, the cyclical behaviour of spending on old age, family and children, and sickness and disability was more in line with the past. The cyclicality of unemployment spending differs when comparing Continental with Southern, Nordic and Eastern EU countries.