Working Paper: NBER ID: w29360
Authors: Joshua Aizenman; Yothin Jinjarak; Hien Nguyen; Ilan Noy
Abstract: Almost all countries announced fiscal support programs once COVID-19 hit. However, there was significant diversity in the magnitude and composition of these fiscal stimulus programs. These differences were determined by myriad political, financial, social, and economic factors - these factors are our focus. We ask what were the factors that are associated with the structure of the fiscal programs that governments chose to adopt in the early stage of the pandemic in 2020. We answer this question using details about the fiscal programs that were announced by 98 governments in the first six months of the pandemic, together with a large set of explanatory variables. Maybe not surprisingly, we find that politics played a very significant part in determining the size and composition of these fiscal programs. Governments and societies that are less polarized and more capable were able to mobilise more fiscal resources. We also find that it was governments with bigger debt loads that announced bigger programs, but that sovereign spreads were not so clearly associated with the size of these program plans. There is a limit, however, to what we can glean from these cross-country comparisons. Ultimately, the understanding of the politics and political-economy considerations that led to the specific content of each fiscal program will have to rely on information about the actual deliberations in each government’s halls of power, should these ever become public.
Keywords: COVID-19; Fiscal Stimulus; Political Economy
JEL Codes: F5; H12; H62; H63; H84
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher debt-to-GDP ratio (H69) | larger fiscal stimulus packages (E65) |
| quantitative easing (C54) | larger fiscal stimulus packages (E65) |
| higher income levels (D31) | larger fiscal stimulus packages (E65) |
| less polarized governments (D72) | mobilize more fiscal resources (E62) |
| more capable governments (H11) | mobilize more fiscal resources (E62) |
| higher debt loads (G51) | larger fiscal programs (E62) |
| proportion of salaried workers (J39) | size of fiscal packages (E62) |