engleski

Institutionalizations of Fiscal Policy and the COVID Pandemic

After the crisis of 2008/09, the literature on Varieties of Capitalism produced research on the connections between institutional poles and macroeconomic management, and particularly fiscal policy. The preferences of CMEs were identified as restricted and conservative (and therefore prone to austerity), and LMEs as discretionary (prone to anti-cyclical spending in crises). After 2010, it became clear that political circumstances in the EU and USA rendered this point moot as fiscal consolidations became unavoidable. However, the staunch turn towards the institutionalization of crisis-austerity in the EU certainly exacerbated the structural issues within the EU, and particularly within the eurozone. Widespread austerity was arguably necessary from the point of view of a functional monetary union, but it also disrupted growth models in many of the less productive eurozone members. Interestingly, the recession of 2020 was different and its atypical nature meant new measures became widely accepted. These are essentially inverse of the once institutionalized a decade ago. The crucial components of the Pact for Stability and Growth are suspended at least until the end of 2022, and this enabled fiscally expansive behavior in member states. At the same time, the EU itself managed to invent (more modest, but novel) anti-cyclical capabilities. The Trump and Biden stimulus packages mirror these developments in the US (again, an inversion of the situation a decade ago). This paper surveys the changes to the fiscal policy institutionalization in the past two widespread recessions and the repercussions to growth models in the EU.

fiscal policy ; macroeconomic management ; Varieties of Capitalism ; COVID recession ; growth models

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