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Monetary compensation schemes during the COVID-19 pandemic: Implications for household incomes, liquidity constraints and consumption across the EU

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Abstract

This paper analyses the effect of the COVID-19 pandemic on household disposable income and household demand in the European Union (EU), making use of the EU microsimulation model EUROMOD and nowcasting techniques. We show evidence of heterogeneity in the impact of the COVID-19 pandemic on the labour markets in EU Member States, with some countries hit substantially harder than others. Most EU Member States experience a large drop in market incomes in 2020, with poorer households hit the hardest. Tax-benefit systems cushioned significantly the transmission of the shock to the disposable income and the household demand, with monetary compensation schemes playing a major role. Additionally, we show that monetary compensation schemes prevent a significant share of households from becoming liquidity constrained during the pandemic.

Suggested Citation

  • Michael Christl & Silvia De Poli & Francesco Figari & Tine Hufkens & Chrysa Leventi & Andrea Papini & Alberto Tumino, 2022. "Monetary compensation schemes during the COVID-19 pandemic: Implications for household incomes, liquidity constraints and consumption across the EU," JRC Working Papers on Taxation & Structural Reforms 2022-03, Joint Research Centre.
    • Handle: RePEc:ipt:taxref:202203
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    Cited by:

    1. Astarita, Caterina & Alcidi, Cinzia, 2022. "Did the COVID-19 pandemic impact income distribution?," MPRA Paper 113851, University Library of Munich, Germany.
    2. Charalambakis, Evangelos & Teppa, Federica & Tsiortas, Athanasios, 2024. "Consumer participation in the credit market during the COVID-19 pandemic and beyond," Working Paper Series 2922, European Central Bank.
    3. Alina CIUREA (MECA), 2022. "Impact of European Union Social Policy during Pandemic on Household Income," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 3, pages 117-124.
    4. Cavusoglu, Tarkan & Pistoresi, Barbara & Poma, Erica, 2025. "Economic distress, democratic quality, and satisfaction with democracy in Europe during COVID-19: A multilevel approach," Economic Modelling, Elsevier, vol. 150(C).
    5. Popova, Daria & Avram, Silvia & Rioboo, Irene, 2025. "Gender income inequality during the COVID-19 pandemic in Europe: the role of government response," Centre for Microsimulation and Policy Analysis Working Paper Series CEMPA7/25, Centre for Microsimulation and Policy Analysis at the Institute for Social and Economic Research.

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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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