The Role of Fiscal Policy Measures in Mitigating the Effects of the Covid-19 Crisis in Germany
ECONOMIC POLICY AND ITS IMPACT
Key Messages
- We use a novel methodology for modeling the socio-economic impacts of economic crisis in Germany, and apply it to estimate the impact of the Covid-19 pandemic
- We estimate that German households lost more than 3 percent of their market income in 2020 due to the Covid-19 pandemic, with the effect being strongly regressive
- However, the fall in market income was largely offset by the tax-benefit system, which softened the reduction in disposable income to a more modest 0.5 percent
- Our study highlights the importance of shorttime work and discretionary policy measures (the Covid-19 one-off child benefit and the increase in the tax allowance for single parents) in cushioning the impact of the Covid-19 crisis
- The strong income-stabilizing property of shorttime work and discretionary policy measures for low-income earners has also helped overcome a strong reduction in household demand
The Covid-19 pandemic hit Germany hard in 2020. Driven by the need to limit close contact and the resulting strict lockdown measures, economic activity fell sharply. To counter the effects of the Covid-19 pandemic, the German government introduced several policy measures. While the macroeconomic impact of the Covid-19 pandemic is well documented, evidence on the distributional impact on household income at the micro level is more limited. Our analysis shows that German households experienced a loss of over 3 percent of market income in 2020 due to the Covid-19 pandemic.
Michael Christl, Silvia De Poli, Tine Hufkens, Andreas Peichl and Mattia Ricci: Taxation and Innovation: “The Role of Fiscal Policy Measures in Mitigating the Effects of the Covid-19 Crisis in Germany,” EconPol Forum 24 (5), CESifo, Munich, 2023.