ASSESSMENT OF COVID-19 IMPACT ON FISCAL SUSTAINABILITY AND REAL GDP GROWTH IN EUROPE
Keywords:
COVID-19, fiscal sustainability, real GDP growth, output gap, independent fiscal institutionsAbstract
The pandemic caused by the SARS-CoV-2 virus is the event with the strongest short-term impact on
socioeconomic life in recent decades. It caused an unprecedented shock that faced governments around the world
with challenging decisions.
Imposing physical distancing measures was necessary to prevent the spread of the virus. At the same time, the
shutdown of entire sectors took a heavy toll on the economy.
On the one hand, the contraction of GDP led to lower public revenue in the state budgets. On the other hand,
governments introduced various measures to stimulate the economy. They were associated with both temporary tax
relief and additional spendings on the social and healthcare systems.
For the first time, the general escape clause was activated by the European Commission and temporary deviations
from the fiscal rules were allowed. This empowered governments to take the necessary measures without
considering these limitations. However, due to lower GDP growth and tax cuts, public revenues declined. At the
same time, costs increased significantly - for hospital treatment, sickness and quarantine benefits, for business and
household support.
These circumstances led to the accumulation of significant deficits and accelerated debt. Several analyses of the
numerical values of these deviations in the budget parameters have been carried out in accordance with the reported
statistics. However, research on fiscal sustainability is more limited. It is an indicator that is also measured by
different methods and takes a numerical value. However, fiscal sustainability can also be assessed through a more
subjective approach. Such can be obtained with analysis of expert opinions.
An empirical study was conducted among seventeen countries in the European Union. The respondents are
representatives of expert or managerial level in independent fiscal institutions. These organizations are considered
more objective than the ministries of finance. This is because the task of the former is to conduct independent
monitoring, while the latter make decisions on fiscal policy.
One of the various questions asked in the research is related to fiscal sustainability and real GDP growth. Using a
scale of 1 to 5, experts provide an assessment of the impact of COVID-19 on fiscal sustainability in the short and in
the long term, on real GDP growth and on minimizing the output gap. The results can be used as a basis for further
research comparing the numerical values of indicators with the assessment of experts, which is considered more
subjective.
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