Which Crisis Support Fiscal Measures Worked During the Covid-19 Shock in Europe?

Abstract

We build a comprehensive database that categorizes COVID-19 fiscal measures announcements in 12 European Union countries into 7 distinct spending categories. Through our empirical analysis, we investigate the impact of these support packages on the economy. Overall, the fiscal measures played a crucial role in promoting output recovery without significant inflationary pressures. However, we observed substantial variations across different spending categories. Assistance provided to small and medium enterprises and specific sectors proved to be highly effective in stimulating the output while maintaining inflation. Direct pandemic spending and measures aimed at sustaining employment levels generated substantial output and employment multipliers and enhanced business sentiment without leading to inflationary costs. Conversely, universal help had inflationary effects and transfers to households primarily aroused consumer and business sentiment without producing significant economic impacts.