Fiscal sustainability duringthe COVID-19 pandemic

Arbeitspapier

The "Great Lockdown" implemented in response to the COVID-19 pandemic has led to a severe world-wide economic crisis. In euro area countries, sovereign debt-to-GDP ratios are on the rise and reductions in expected fiscal surpluses raise sustainability concerns amongst investors. This paper provides novel estimates of non-linear state-dependent fiscal limits based on Bi (2012) for the five largest euro area countries. Within the DSGE model I build a COVID-19 scenario calibrated to match the decline in real GDP growth forecasts between April and February2020 and the fiscal stimulus packages announced up to the end of March 2020. On average, fiscal space contracts by 58.4 percent of national GDP. In a worst-case scenario fiscal space is 28.6 percent for Italy and 65.9 percent of national GDP for Germany.

Object Details

• ISBN: 978-3-95729-732-7
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Deutsche Bundesbank Discussion Paper ; No. 35/2020

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Fiscal Policies and Behavior of Economic Agents: General ; National Budget, Deficit, and Debt: General
• Subject: state-dependent fiscal limits ; fiscal space ; sovereign debt ; Laffer curve ; COVID-19

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hürtgen, Patrick
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/222543
• Last update: 10.03.2025, 11:44 AM CET