IDEAS home Printed from https://ideas.repec.org/a/bpj/evoice/v21y2024i1p29-63n1009.html
   My bibliography  Save this article

A Comparative Evaluation of Fiscal Stabilization Strategies during the Covid-19 Pandemic with Germany as a Reference Point

Author

Listed:
  • Baudisch Victoria

    (26595 Trier University , Trier, Germany)

  • Neuenkirch Matthias

    (26595 Trier University and CESifo , Trier, Germany)

Abstract

We provide a comparative evaluation of fiscal stabilization strategies during the Covid-19 pandemic. For this purpose, we use Germany’s temporary value-added tax (VAT) rate reduction as a reference point. We construct a credible counterfactual for Germany in a two-step procedure. First, we carry out a careful pre-selection of the donor pool countries to obtain a control group that is highly similar to Germany regarding important post-treatment characteristics. Second, we apply a reweighting scheme on the pre-selected donor countries. The synthetic control group only differs from Germany in the way that it did not implement the temporary VAT rate reduction. Our results indicate that the German VAT cut policy and partial VAT reductions in other countries were relatively ineffective in stimulating consumption with regards to their costs when compared to other measures such as (targeted) direct cash transfers (e.g. implemented in Canada, Denmark, Japan, and the United States). We attribute this to the fact that direct cash transfers are more comprehensible, salient, and actionable, in particular, in a dynamic environment with high uncertainty induced by unclear future economic prospects.

Suggested Citation

  • Baudisch Victoria & Neuenkirch Matthias, 2024. "A Comparative Evaluation of Fiscal Stabilization Strategies during the Covid-19 Pandemic with Germany as a Reference Point," The Economists' Voice, De Gruyter, vol. 21(1), pages 29-63.
    • Handle: RePEc:bpj:evoice:v:21:y:2024:i:1:p:29-63:n:1009
    DOI: 10.1515/ev-2024-0019
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/ev-2024-0019
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/ev-2024-0019?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
    2. Alberto Abadie & Alexis Diamond & Jens Hainmueller, 2015. "Comparative Politics and the Synthetic Control Method," American Journal of Political Science, John Wiley & Sons, vol. 59(2), pages 495-510, February.
    3. Bachmann, Rüdiger & Born, Benjamin & Goldfayn-Frank, Olga & Kocharakov, Georgi & Luetticke, Ralph & Weber, Michael, 2021. "A Temporary VAT Cut as Unconventional Fiscal Policy," CEPR Discussion Papers 16690, C.E.P.R. Discussion Papers.
    4. Albuquerque, Bruno & Green, Georgina, 2023. "Financial concerns and the marginal propensity to consume in COVID times: Evidence from UK survey data," Journal of Macroeconomics, Elsevier, vol. 78(C).
    5. Alberto Abadie, 2021. "Using Synthetic Controls: Feasibility, Data Requirements, and Methodological Aspects," Journal of Economic Literature, American Economic Association, vol. 59(2), pages 391-425, June.
    6. Abadie, Alberto & Diamond, Alexis & Hainmueller, Jens, 2010. "Synthetic Control Methods for Comparative Case Studies: Estimating the Effect of California’s Tobacco Control Program," Journal of the American Statistical Association, American Statistical Association, vol. 105(490), pages 493-505.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Victoria Baudisch & Matthias Neuenkirch, 2023. "Costly, but (Relatively) Ineffective? An Assessment of Germany’s Temporary VAT Rate Reduction During the Covid-19 Pandemic," Research Papers in Economics 2023-04, University of Trier, Department of Economics.
    2. Kuruc, Kevin, 2022. "Are IMF rescue packages effective? A synthetic control analysis of macroeconomic crises," Journal of Monetary Economics, Elsevier, vol. 127(C), pages 38-53.
    3. Echevarría, Cruz A. & Hasancebi, Serhat & García-Enríquez, Javier, 2022. "Economic Effects of Macao’s Integration with Mainland China: A Causal Inference Study," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 37(2), pages 179-215.
    4. Manuel Funke & Moritz Schularick & Christoph Trebesch, 2023. "Populist Leaders and the Economy," American Economic Review, American Economic Association, vol. 113(12), pages 3249-3288, December.
    5. Maximiliano Marzetti & Rok Spruk, 2023. "Long-Term Economic Effects of Populist Legal Reforms: Evidence from Argentina," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 65(1), pages 60-95, March.
    6. Chuku Chuku & Mustafa Yasin Yenice, 2021. "Working Paper 356 - Eurobonds, debt sustainability and macroeconomic performance in Africa: Synthetic controlled experiments," Working Paper Series 2482, African Development Bank.
    7. Sadeghi, Ali & Kibler, Ewald, 2022. "Do bankruptcy laws matter for entrepreneurship? A Synthetic Control Method analysis of a bankruptcy reform in Finland," Journal of Business Venturing Insights, Elsevier, vol. 18(C).
    8. Dennis Shen & Peng Ding & Jasjeet Sekhon & Bin Yu, 2022. "Same Root Different Leaves: Time Series and Cross-Sectional Methods in Panel Data," Papers 2207.14481, arXiv.org, revised Oct 2022.
    9. Pavlik, Jamie Bologna & Jahan, Israt & Young, Andrew T., 2023. "Do longer constitutions corrupt?," European Journal of Political Economy, Elsevier, vol. 77(C).
    10. Runst, Petrik & Höhle, David, 2022. "The German eco tax and its impact on CO2 emissions," Energy Policy, Elsevier, vol. 160(C).
    11. Pekka Malo & Juha Eskelinen & Xun Zhou & Timo Kuosmanen, 2024. "Computing Synthetic Controls Using Bilevel Optimization," Computational Economics, Springer;Society for Computational Economics, vol. 64(2), pages 1113-1136, August.
    12. Robert Messerle & Jonas Schreyögg, 2024. "Country-level effects of diagnosis-related groups: evidence from Germany’s comprehensive reform of hospital payments," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 25(6), pages 1013-1030, August.
    13. Michael Funke & Kadri Männasoo & Helery Tasane, 2023. "Regional Economic Impacts of the Øresund Cross-Border Fixed Link: Cui Bono?," CESifo Working Paper Series 10557, CESifo.
    14. Robert Kraemer & Jonne Lehtimäki, 2024. "Government debt, European Institutions and fiscal rules: a synthetic control approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(4), pages 1112-1157, August.
    15. Emiliano Toni & Pablo Paniagua & Patricio 'Ordenes, 2024. "Policy Changes and Growth Slowdown: Assessing the Lost Decade of the Latin American Miracle," Papers 2407.02003, arXiv.org.
    16. Peter Backus & Thien Nguyen, 2021. "The Effect of the Sex Buyer Law on the Market for Sex, Sexual Health and Sexual Violence," Economics Discussion Paper Series 2106, Economics, The University of Manchester.
    17. Andrii Melnychuk, 2024. "Synthetic Controls with spillover effects: A comparative study," Papers 2405.01645, arXiv.org.
    18. Tomasz Serwach, 2023. "The European Union and within‐country income inequalities. The case of the new member states," The World Economy, Wiley Blackwell, vol. 46(7), pages 1890-1939, July.
    19. Goryunov, Alexander & Ageshina, Elena & Lavrentev, Igor & Peretyatko, Polina, 2023. "Estimating the effect of Russia’s development policy in the Far Eastern region: The synthetic control approach," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 72, pages 58-72.
    20. Adu, Derick T. & Li, Wenying & Sawadgo, Wendiam P.M., 2023. "Estimating the unintended impact of the North American free trade agreement on U.S. public health," Social Science & Medicine, Elsevier, vol. 333(C).

    More about this item

    Keywords

    consumption; Covid-19; synthetic control; temporary VAT cut; unconventional fiscal policy;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:evoice:v:21:y:2024:i:1:p:29-63:n:1009. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.