4615
Views
609
Downloads |
The effectiveness of the fiscal policy response to COVID-19 through the lens of short and long run labor market effects of COVID-19 measures*
Tibor Kovač** 
Article | Year: 2022 | Pages: 43 - 81 | Volume: 46 | Issue: 1 Received: June 1, 2021 | Accepted: November 4, 2021 | Published online: March 8, 2022
|
FULL ARTICLE
FIGURES & DATA
REFERENCES
CROSSMARK POLICY
METRICS
LICENCING
PDF
|
Variable
|
Period
|
Frequency
|
Database
|
Description
|
|
Gross domestic product at market prices
|
1999Q1-2020Q4
(Malta from 2000)
|
Quarterly
|
Eurostat
|
Unite=chain linked volumes, index 2015=100, seasonally and calendar
adjusted data
|
|
Unemployment rate
|
1999Q1-2020Q4
(Bulgaria from 2000; France from 2003)
|
Quarterly
|
Eurostat
|
Unite=percentage of population in the labor force, sex=total, trend
cycle data
|
|
Working age population
|
2000-2020
(France from 2003)
|
Annual
|
Eurostat
|
Unite=number, sex=total
|
|
Active (persons) population
|
2000-2020
(France from 2003)
|
Annual
|
Eurostat
|
Unite= percentage of total population, sex=total
|
|
Output elasticity of labor
|
2000-2019
|
Annual
|
Penn World Table (Feenstra, Inklaar and Timmer, 2015)
|
|
Sou rce: Authors’ own calculation based on Labor force survey (LFS) unemployment data by
Eurostat (2021).
Source: Authors’ own calculation based on LFS unemployment data by Eurostat (2021) and IMF (2020).
Source: Authors’ own calculation based on LFS unemployment data by Eurostat (2021) and Penn World Table (Feenstra, Inklaar and Timmer, 2015).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by
Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
Source: Authors’ own calculation based on Labor force survey (LFS) unemployment data by Eurostat (2021).
|
Country
|
Fiscal measures (excluding health
care system)
|
|
Austria
|
Short-term work arrangement; liquidity
support for firms; public loan guarantees; deferral/reduction of taxes;
deferral of social security contributions; government investments to boost
the economy
|
|
Belgium
|
Support for temporary unemployed
and self-employed; liquidity support; deferral of social security and tax
payments; solvency support; support to affected firms/households by
subnational governments; a scheme for short-term trade credit insurance
|
|
Bulgaria
|
60/40 wage subsidy scheme; support
for artists; tourism support; agricultural producers support; tax relief;
bonuses to pensions and minimum pension increase; bonuses to pensions and
minimum pension increase; active labor market policies; increased
unemployment benefits; "Keep Me"/ "Employment for you"
program; support for workplaces in the hotel and restaurant sector
|
|
Croatia
|
Deferment of public obligations;
deferral of selected parafiscal charges; interest-free loans to local
governments; subsidization of net minimum; early refund of taxes for
individuals; tax obligations of companies reduced/written off; short-time
work program
|
|
Cyprus
|
Income support for households;
wage subsidy; grants to small businesses and self-employed; support for the
tourism sector; tax deferral/reduction; interest subsidy for new business and
housing loans; guarantees; supported loans to SMEs
|
|
Czechia
|
Wage subsidy; tax
deferral/reduction; compensatory bonus for self-employed persons and small
Ltd; public guarantees; grants for tourism
|
|
Denmark
|
Measures to support workers and
businesses affected by the COVID-19 crisis. Temporary liquidity measures;
deferral of tax payments; government guarantees
|
|
Estonia
|
Cover for wage reduction; business
loans to rural companies; guarantees/collateral for bank loans; business
loans for liquidity support to companies; support to local authorities;
investment loans to companies; compensation for direct costs of canceled
cultural and sporting events
|
|
Finland
|
Lower pension contributions;
grants to SMEs and self-employed; expanded parental allowance, social
assistance, and unemployment insurance; deferral of tax and pension payments;
recapitalization scheme for state-owned companies; supporting restaurant and
catering businesses; guarantees for the Employment Fund, SURE, and the EIB;
support to households/businesses; increased public investment; temporary
loosening of unemployment insurance benefit eligibility
|
|
France
|
Public guarantees; liquidity
support; deferral of social security and tax payments; accelerated refund of
tax credits; support for wages under the short-time work scheme; direct
financial support for affected microenterprises; deferral of rent and utility
payments for affected microenterprises/SMEs; additional investments;
nationalizations of companies in difficulty; facilitating granting of
exceptional bonuses; extension of unemployment benefits; support for the
hardest-hit sectors
|
|
Germany
|
Short-term work subsidy; expanded
childcare benefits; easier access to basic income support for the
self-employed; grants to small business owners and self-employed persons;
interest-free tax deferrals; venture capital funding for start-ups;
temporarily expanded duration of unemployment insurance and parental leave
benefits; temporary VAT reduction; grants for hardest-hit SME’s; financial
support for local governments, credit guarantees for exporters and
export-financing banks
|
|
Greece
|
Temporary transfers to vulnerable
individuals; transfer for employees working in hard-hit firms and for
self-employed professionals; extension of unemployment benefits; support for
short-term employment, subsidies to household’s loans; liquidity support to
hard-hit businesses through loan guarantees, loan and interest payment
subsidies, refundable advance payment, rent reductions, and deferred payments
of taxes/social security contributions
|
|
Hungary
|
Employers' social contributions
lifted; tax deferral; cancel of tourism development contributions; tax relief
for media; subsidizing wages for shortened work hours; job creation by
supporting investments; support for priority sectors; provision of
interest-subsidized and guaranteed credit facilities
|
|
Ireland
|
Employment wage support scheme:
unemployment payment available to those who have lost employment due
pandemic; compensation payments to the affected firms; investment in
training, education, skills development, work placement schemes, recruitment
subsidies, job search, and assistance measures; grants for enterprises;
waiver of commercial rates; reducing the lending rate for micro and small
businesses; support to tourism and culture sector; tax deferral/reduction
|
|
Italy
|
Measures to preserve jobs and
support income of laid-off workers and self-employed; measures to support
businesses; tax deferrals; postponement of utility bill payments; measures to
support credit supply; state guarantees; measures to support businesses,
including grants for SMEs
|
|
Latvia
|
Loans and guarantees to affected
businesses; sectoral support packages; use of EU funds to mitigate the impact
of the crisis; revenue measures; expenditure measures supporting idle workers
and social benefits; investment funds established to support affected large
enterprises.
|
|
Lithuania
|
Additional funds for support for
the self-employed; wage subsidies; co-financing of climate change investment
projects; guarantees for agricultural as well as SME loans; increased the
borrowing; interest compensation support for SMEs with deferred loans; a new
financial instrument for businesses to form portfolios from business loans;
cheap loans targeted to hard-hit sectors; launching business support fund;
job search allowances; an increase in social benefits; additional funds for
the self-employed and for vocational training; an increase in unemployment
benefits
|
|
Malta
|
Support individuals unable to work
from home; special unemployment benefits; wage subsidies for businesses and
self-employed individuals; support for businesses to cover costs of
quarantined employees; rent subsidy scheme for SMEs; tax deferral/reduction;
in-work benefit and grants
|
|
Netherlands
|
Compensation of labor costs for
companies; compensation for affected sectors; support for entrepreneurs and
self-employed, start-ups and small innovation companies; scaling up of the
short-time working scheme; allowances for SMEs to help them finance their
fixed costs; deferral of tax; public guarantee schemes
|
|
Poland
|
Wage subsidies for employees of
affected businesses and self-employed; increased guarantees for enterprises;
loans for micro-firms; postponement /cancellation of social insurance
contributions; deduction of 2020’s losses for 2021 tax settlement; an
allowance for parents of young children related to school closures;
solidarity benefit for those who lost job due to crisis; an increase in the
unemployment benefit; tourism voucher; interest rate subsidies; support for
public investment; liquidity loans and subsidies for micro, small/medium, and
large enterprises
|
|
Portugal
|
Financial support for those
temporarily furloughed by their employer; financial incentives to support the
progressive reopening and to normalize business activity; state-guaranteed
credit lines for medium, small and micro enterprises; tax/social security
contribution deferrals; financial support for the self-employed; support to
the national airline
|
|
Romania
|
Covering partially the wages of
parents staying home due to school closure; covering in part the wages of
self-employed and workers in danger of being laid off; bonus for corporate
income tax payments; deferral of utility payments for SMEs; grants for the
businesses; tax deferral/reduction
|
|
Slovakia
|
Wage compensation for affected
businesses and self-employed, and subsidies to individuals without income;
enhanced unemployment benefits; deferral and waiver of employers' social
security contributions; tax deferral; rental subsidies
|
|
Slovenia
|
Tax deferrals; wage subsidies;
support to household income; support to corporate liquidity through grants,
equity purchase, and government guarantees and credit lines; subsidies for
shortened work time; vouchers for tourism
|
|
Spain
|
Unemployment benefit for workers
temporarily laid off; direct aid for solvency support; tax deferral and
reduction; benefit for self-employed workers; assistance programs for
vulnerable renters; strengthened unemployment protection; subsidy for vehicle
renewal; investment in digitization and innovation in the tourism; benefits
for workers who have exhausted unemployment benefits; extension of
unemployment benefit to cover workers laid off during the probation period; a
temporary monthly allowance for temporary workers; a temporary subsidy for
household employees affected by COVID-19; financial assistance to the
education system; exemptions of social contributions for impacted companies
that maintain employment; deferral of social security debts for
companies/self-employed; moratoria of social security contributions for the
self-employed and companies in selected industries
|
|
Sweden
|
Liquidity support and guarantees;
additional expenditures on wage subsidies for short-term leave, temporary
payment of sick leave; loans to SMEs; temporary rent subsidies to vulnerable
sectors; temporarily increase of unemployment benefits; expanded active labor
market policies; expansion of education, initiatives for green jobs and
summer jobs for young people; temporary reduction of employers’ social
security contributions; grants to municipalities and regions; temporary
grants to businesses to cover their fixed costs; support to regional public
transport, deferral of taxes/social contributions; credit guarantees for
Swedish airlines, state credit guarantees for loans to companies; guarantees
to the EU for loans to member states, SURE, and to the European Investment
Bank for a guarantee fund to support companies
|
Source: IMF (2021).
Table 1Description of the variables DISPLAY Table
Figure 1Difference between estimated and actual values of the change in the unemployment rate, 2020:Q1 and 2020:Q2 DISPLAY Figure
Figure 2Discretionary fiscal response to the COVID-19 crisis as additional spending or foregone revenue in the non-health sector, as of September 11, 2020 (percentage of GDP) DISPLAY Figure
Figure 3Estimated effectiveness of fiscal measures and discretionary fiscal response ratio, 2020:Q2 DISPLAY Figure
Figure 4Cumulative difference of the labor effect on the growth of potential output between scenarios with and without fiscal measures for period 2021-2023 DISPLAY Figure
Figure A1Okun’s law in Austria DISPLAY Figure
Figure A2Okun’s law in Belgium DISPLAY Figure
Figure A3Okun’s law in Bulgaria DISPLAY Figure
Figure A4Okun’s law in Croatia DISPLAY Figure
Figure A5Okun’s law in Cyprus DISPLAY Figure
Figure A6Okun’s law in Czechia DISPLAY Figure
Figure A7Okun’s law in Denmark DISPLAY Figure
Figure A8Okun’s law in Estonia DISPLAY Figure
Figure A9Okun’s law in Finland DISPLAY Figure
Figure A10Okun’s law in France DISPLAY Figure
Figure A11Okun’s law in Germany DISPLAY Figure
Figure A12Okun’s law in Greece DISPLAY Figure
Figure A13Okun’s law in Hungary DISPLAY Figure
Figure A14Okun’s law in Ireland DISPLAY Figure
Figure A15Okun’s law in Italy DISPLAY Figure
Figure A16Okun’s law in Latvia DISPLAY Figure
Figure A17Okun’s law in Lithuania DISPLAY Figure
Figure A18Okun’s law in Malta DISPLAY Figure
Figure A19Okun’s law in Netherlands DISPLAY Figure
Figure A20Okun’s law in Poland DISPLAY Figure
Figure A21Okun’s law in Portugal DISPLAY Figure
Figure A22Okun’s law in Romania DISPLAY Figure
Figure A23Okun’s law in Slovakia DISPLAY Figure
Figure A24Okun’s law in Slovenia DISPLAY Figure
Figure A25Okun’s law in Spain DISPLAY Figure
Figure A26Okun’s law in Sweden DISPLAY Figure
Table B1Description of fiscal measures imposed to fight COVID-19 crisis DISPLAY Table
* The views presented in this paper are the authors’ own and do not necessarily reflect the official position of the Croatian National Bank. We want to express gratitude towards our university professor doc. dr. sc. Ozana Nadoveza Jelić. Her insights have been invaluable in the creation of this research paper. Also, we would like to thank two anonymous reviewers for their thoughtful comments and efforts, which have improved our paper.
1 As of May 12, 2021 (WHO,  2021).
2 Although the mentioned end-of-sample problem could be an issue, as explained in the previous section, we acknowledge that it is less of an issue in this case because we use forecasted values here, which lower the end-of-sample bias uncertainty. However, forecasted values also bring their own uncertainty.
3 The country where GARCH (1,1) model is used in the equation is Ireland due to heteroskedasticity. For the problem of autocorrelation, it is used in Belgium, Estonia, Germany, Greece, Ireland, and Poland. Results are strongly robust. Also, we have estimated different models with different numbers of lags by using either independent variables or a combination of independent and dependent variables and with or without the GARCH (1,1) model. In either case, results remain strongly robust and are available upon request.
4 IMF also has available data up to June 12, 2020, but data for most selected countries in this paper is not available.
5 For a detailed version of measures, one should visit the IMF website.
6 E.g., period 2021-2023 – With fiscal measures: 1%, 2%, 3%; Without fiscal measures: -1%, -2%, 2% -> Summed with fiscal measures – Summed without fiscal measures = (1+2+3) - (-1-2+2) = 7%.
7 We would like to thank our anonymous reviewer for this
paragraph, which is a major contribution to the better positioning of our
results in this paper as first approximations. With newly available data, new
approximations will be clearer to approximate and connect with existing
approximations in this paper.
|
|
March, 2022
I/2022
|
