The Fiscal Policy Response to the Pandemic

This paper provides estimates of the size and determinants of the fiscal policy response to the COVID-19 pandemic across thirty advanced economies. In contrast to the fiscal response to financial crises, I find no evidence that fiscal space was an important determinant of the aggressiveness of pandemic fiscal packages. Focusing in on the US fiscal policy response, I discuss the policy implications of the unique features of a pandemic recession. I argue that the social insurance and public health components of the $5.2 trillion US package, such as expanded unemployment insurance and government funding of vaccine development and distribution, were highly appropriate, whereas broad-based stimulus measures, such as the onetime payments to households, were not. Finally, I consider some of the longer-run consequences of the US fiscal policy actions. The aggressive fiscal expansion, along with extensive private saving during the pandemic, is likely to generate rapid growth over the next few years. The rise in the debt-to-GDP ratio, caused by both the policy response and the pandemic recession itself, could limit future fiscal action if anti-debt sentiment reemerges.