European Public Finances and the Great Recession: France, Germany, Ireland, Italy, Spain and the United Kingdom Compared

Abstract

We compare economic trends over the financial crisis, and the tax and benefit reforms implemented in response, across six EU countries. Countries where the crisis led to a relatively greater increase in public spending than a decline in tax revenues - in particular, France and Italy - are found to have implemented consolidations that are more reliant on tax increases than spending cuts. While in France and Italy households with children have lost less from tax and benefit reforms than pensioner households, the reverse is true in Ireland and the United Kingdom. The pattern of cuts to public services also varies: France, Ireland and the UK chose to protect spending on health and schools from cuts, while Italy and Spain chose to cut spending on these services relatively deeply. One clear improvement has been the introduction of greater independence and transparency in the production of economic and fiscal forecasts. Unfortunately, in many cases, the fiscal response to the crisis missed opportunities to improve the overall efficiency of the tax system.