Fiscal Multipliers During Pandemics

Tidiane Kinda, Andras Lengyel and Kaustubh Chahande

No 2022/149, IMF Working Papers from International Monetary Fund

Abstract: Many countries have deployed substantial fiscal packages to cushion the economic fallout from the COVID-19 pandemic. A historical look at past pandemics and epidemics highlights concomitant public sector support in response to health crises. This paper assesses how fiscal multipliers could vary during health crises, particularly how factors such as social distancing and uncertainty could lower contemporaneous (T) multipliers and increase near-term (T+1 and T+2) multipliers as economies re-open, including due to pent-up demand. Based on Jorda’s (2005) local projection methodology, the paper shows that cumulative fiscal multipliers one year after a health crisis is about twice larger than during normal times, particularly in advanced economies. These results suggest that large-scale fiscal support deployed at the onset of the COVID-19 pandemic could have larger than usual lingering impacts on economic activity, which need to be accounted for when calibrating policies.

Keywords: Fiscal multipliers; fiscal policy; health crises.; health crisis; fixed capital capital formation; pandemic state; transmission channel proxy; pandemic regime; COVID-19; Fiscal stimulus; Global; Middle East; multipliers in the pandemic state; pandemic indicator function; contemporaneous multiplier; containment measure (search for similar items in EconPapers)
Pages: 31
Date: 2022-07-22
New Economics Papers: this item is included in nep-hea
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