Can Fiscal Policy Save Us From Rising Inequality?
- By Sam van de Schootbrugge
- 4 min read
Many central banks entered the Covid-19 pandemic with their lowest ever policy rate going into a recession. And so, for arguably one of the first times in history, governments were left with a mandate to stimulate growth. Yet compared with monetary policy, researchers poorly understand the growth implications of fiscal policy.
The IMF leads this field. Their new working paper examines the medium-term consequences of pandemics and how governments might alleviate adverse effects. Specifically, the authors estimate the impact of five recent pandemics on four key macroeconomic variables: output, unemployment, inequality and poverty. Then, they determine how fiscal policy, particularly social expenditure and healthcare, can mitigate negative macroeconomic outcomes.
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