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The macroeconomic impact of euro area discretionary fiscal policy measures since the start of the pandemic

Author

Listed:
  • Angelini, Elena
  • Bańkowski, Krzysztof
  • Checherita-Westphal, Cristina
  • Muggenthaler-Gerathewohl, Philip
  • Zimic, Srečko

Abstract

This box provides a model-based analysis of the impact of discretionary fiscal policy measures on economic growth and inflation since the start of the COVID-19 pandemic, as reflected in the March 2025 ECB staff macroeconomic projections for the euro area. Fiscal policy lent substantial support to the euro area economy in response to the pandemic and the energy crisis, while adding to public deficits and debt. Overall, the analysis shows that discretionary fiscal policy measures had a strong positive impact on real GDP growth during the years 2020-2022 and were broadly neutral thereafter owing to their partial reversal. They are also estimated to have had an upward effect on inflation overall, particularly during the years 2023-2024. Having introduced energy and inflation compensatory measures in 2022, which helped contain inflation, governments started to withdraw them from 2023. This unwinding contributed to a build-up of inflationary pressures resulting from the fiscal stimulus in previous years. JEL Classification: E62, O40, E31

Suggested Citation

  • Angelini, Elena & Bańkowski, Krzysztof & Checherita-Westphal, Cristina & Muggenthaler-Gerathewohl, Philip & Zimic, Srečko, 2025. "The macroeconomic impact of euro area discretionary fiscal policy measures since the start of the pandemic," Economic Bulletin Boxes, European Central Bank, vol. 3.
    • Handle: RePEc:ecb:ecbbox:2025:0003:8
    Note: 338657
    as

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    More about this item

    Keywords

    Fiscal policy; growth; inflation;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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