The effectiveness of fiscal-budgetary measures to counteract the COVID-19 crisis: Evidence from EU countries

Dornean, Adina; Oanea, Dumitru-Cristian Article The effectiveness of fiscal-budgetary measures to counteract the COVID-19 crisis: Evidence from EU countries Economics: The Open-Access, Open-Assessment Journal Provided in Cooperation with: De Gruyter Brill Suggested Citation: Dornean, Adina; Oanea, Dumitru-Cristian (2022) : The effectiveness of fiscalbudgetary measures to counteract the COVID-19 crisis: Evidence from EU countries, Economics: The Open-Access, Open-Assessment Journal, ISSN 1864-6042, De Gruyter, Berlin, Vol. 16, Iss. 1, pp. 137-151, https://doi.org/10.1515/econ-2022-0024 This Version is available at: https://hdl.handle.net/10419/306064 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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Evidence from EU Countries https://doi.org/10.1515/econ-2022-0024 received July 21, 2021; accepted February 07, 2022 Abstract: The aim of this study is to analyse the fiscalbudgetary measures, which have been taken by almost all governments around the world, including EU countries, in an attempt to limit the negative impact of the pandemic blockade. In most cases, these measures concerned the granting of technical unemployment, the postponement of tax payments, and the suspension or postponement of loan instalments or their maturity. The present study focuses especially on tax and expenditure measures that EU countries have introduced in response to the COVID19 crisis. With this purpose, a paired sample t-test and multiple linear regression are used based on balanced panel data for the 27 EU countries for the period 2000Q1–2020Q3. The obtained results show that COVID-19 crisis had a significant negative impact on GDP growth. At the same time, asignificant increase in public debt and government deficit occurred due to COVID-19 crisis. However, resuming the findings, the intensity, and implicitly, the effect of these measures depends on the specifics of each economy. Keywords: COVID-19 crisis, expenditure measures, tax measures JEL: C33, E62, H25, O11, O52 1 Introduction The outbreak of the coronavirus resulted in a health crisis and a drop in economic activity that was without precedent in recent history. In the context of the COVID-19 pandemic crisis, the recovery pace of the world’seconomiesdepends on the policies that governments and companies have taken and will continue to take. Thus, the pandemic has elevated the need for fiscal policy action to an unprecedented level. The health and economic crisis caused by COVID-19 provides a strong rationale for temporary government support for firms. Some sectors have been hit particularly hard (e.g. airlines and restaurants), but the damage is propagating throughout all sectors and economies. Countries around the world have adopted various forms of support. In the case of measures taken to support businesses, the main types are: revenue measures in order to provide liquidity relief to firms that may face difficulty in paying taxes and other costs; expenditure measures with the objective to help the affected companies to pay for wages and other liquidity needs, such as wage subsidies (to preserve the employer-employee relationship), transfers, or more general liquidity support to firms; government guarantees; subsidised loans provided directly by governments to companies with liquidity pressures; use of extrabudgetary funds (EBFs)managed by the public authorities (e.g. the French Solidarity Fund or Germany’s economic stabilisation fund, and WSF). According to the European Commission (European Commission, 2020, April 14), the policy measures taken against the spread and impact of the coronavirus should be classified into the following categories: expenditure measures; tax measures; sectorial, regional, or measures other than fiscal; any other measures. In most cases, these measures concerned the granting of technical unemployment, the postponement of tax payments, and the suspension or postponement of loan instalments or their maturity. Even if only 1 year has passed since the beginning of the outbreak in almost all countries of the world, there are an important number of papers who authors investigated the impact of COVID-19 crisis and the measures taken (Baldwin & Di Mauro, 2020; Barua, 2020; Cheng, 2020; Elgin, Basbug, & Yalaman, 2020; Siddik, 2020), but without definitive conclusions regarding the efficiency of the applied measures in short-time. Even if the important  * Corresponding author: Adina Dornean, Department of Finance, Money and Public Administration, “Alexandru Ioan Cuza”University of Iași, Iași, Romania, e-mail: [email protected] Dumitru-Cristian Oanea: Department of Money and Banking, The Bucharest University of Economic Studies, Bucharest, Romania, e-mail: [email protected] Economics 2022; 16: 137–151 Open Access. © 2022 Adina Dornean and Dumitru-Cristian Oanea, published by De Gruyter. This work is licensed under the Creative Commons Attribution 4.0 International License. role played by the automatic fiscal stabilisers is known (Bouabdallah et al., 2020; Crespo Cuaresma, Reitschuler, & Silgoner, 2011; Dolls, Fuest, Peichl, & Wittneben, 2019; In’t Veld, Larch, & Vandeweyer, 2013; Mohl, Mourre, & Stovicek, 2019), the present study analyses the effects of the discretionary measures taken by national authorities in European Union (EU)member states in cushioning the economic shock caused by the pandemic. All these measures implemented by the European governments were necessary because according to Bouabdallah et al. (2020),the effectiveness of automatic fiscal stabilisers in counteracting the economic shock is less apparent during the COVID-19 crisis, especially during the lockdown phase. The objective of this research is to investigate especially the tax and expenditure measures that EU countries have introduced in response to the COVID-19 crisis in order to support the affected economies. First, we want to highlight the impact of COVID-19 crisis on economic growth (measured by GDP growth)and then to study if the measures taken by all countries were capable to counteract in a short period of time, during the negative impact of COVID19 crisis, by analysing the evolution of some relevant indicators for economic situation (economic growth, public debt, and budgetary deficit)during this time with a focus on the quarters of 2020. The analysis of the measures taken by different states is useful and important for establishing which are the best practices. The contribution of the article consists in filling the literature gap by investigating the effects of the COVID-19 crisis and the role of fiscal-budgetary measures taken by EU countries in order to counteract the negative effects of the pandemic. The structure of the article consists of six sections. Section 2 provides an overview of the adopted measured and their impact. Section 3 reviews the literature regarding theroleoffiscal policy to counteract the economic crisis. Section 4 explains the data source used and presents the main descriptive statistics of the sample and the methodology employed. Section 5 is dedicated to the presentation of the main results and discussions. Finally, we end by concluding the most relevant results. 2 Overview on Fiscal-Budgetary Measures Adopted by EU Countries in the Context of COVID-19 Crisis According to the Report of European Fiscal Monitor (EU Independent Fiscal Institutions, 2021), the EU 27 countries introduced over 1,000 budgetary measures to counter the effects of the pandemic in 2020 and/or 2021. The size of the fiscal measures amounted to 5% of GDP in 2020 and 2% of GDP until March 2021, but the fiscal policies for stimulating EU economies will increase in 2021, if new measures will be adopted or current support measures will be extended. Comparing with the 2009 global financial crisis, the overall amount of discretionary stimulus in EU countries amounted only around 1.5% of GDP (Haroutunian, Osterloh, & Sławińska, 2021), which highlights the higher impact of the COVID-19 crisis on the economy and budgetary position. Another difference between these two crises consists in the heterogeneity of the measures, and also regarding the dimension of the measures, because during the global financial crisis were EU member states where stimulus measures reached over 3% (inthecaseofLuxembourg),while some countries did not provide any stimulus at all. There are a number of important measures (as we can see in the Communication of European Commission –(European Commission, 2021, February 12)and it is not our objective to present every measure, but to resume it. The degree of policy targeting varied across countries, sectors, and businesses, because in some countries, the measures were available to all firms, but in other countries, the measures were granted to specific sectors (e.g. tourism and commercial air travel)or to companies that have experienced a significant drop in revenues (in this case, the taxpayers had to prove the revenue decrease to the tax authority). Also, there are few countries, where the companies received government support only if they asked for it. On the other hand, there are countries that offered support to small and medium sized enterprises (SMEs)or self-employed businesses considering that these businesses will face higher liquidity constraints than others. An overview of the fiscal-budgetary measures reported by national authorities is presented in Table 1. The measures differ by country, but from a total number of 566 measures, the most common are public guarantees (used by all member countries), direct grants (used by 30),tax deferrals (29)and loan moratoria (25). Table 2 reveals the size of the most important fiscalbudgetary measures on 30 September 2020. The nominal value of the government support packages related to the pandemic and reported by national authorities represented more than 2,400 billion euros (around 14% of 2019 GDP). Also, in this case, the high amount of money (without moratoria)is dedicated to public guarantees (1,580 billion euros), direct grants (327 billion euros), public support for credit insurance (227 billion euros), and tax deferrals (170 billion euros). 138 Adina Dornean and Dumitru-Cristian Oanea Table 1: Types of fiscal-budgetary measures Loan moratoria Public guarantees Public loans Equity participation Direct grants Tax deferrals Tax relief Public support for trade credit insurance Country 25 31 16 8 30 29 20 9 AT 2 1 2 2 BE 3 2 8 4 2 BG 1 3 5 1 2 CY 2 3 1 10 2 4 CZ 1 4 17 1 5 DE 3 4 5 2 5 3 9 1 DK 4 2 5 2 EE 1 3 4 1 4 1 ES 4 7 2 8 7 6 1 FI 1 6 1 FR 1 1 2 1 1 GR 5 2 2 26 5 2 HR 3 2 2 1 5 7 HU 5 2 2 7 1 6 1 IE 1 3 5 1 22 1 7 IS 1 3 5 2 5 IT 6 9 1 2 1 3 2 LI 1 2 1 LT 2 4 4 1 7 2 LU 1 3 2 1 LV 1 2 1 1 3 1 1 MT 1 1 7 2 2 NL 3 5 7 1 1 NO 3 3 6 4 PL 2 4 3 1 8 13 PT 4 1 2 3 2 1 2 RO 4 1 1 1 4 2 SE 2 1 7 2 1 SI 1 2 1 7 SK 2 6 3 3 UK 3 2 10 3 1 1 Number of measures 60 92 38 11 190 81 83 11 Source: ESRB Working Group Members (2021,p.53). Table 2: Amounts of fiscal-budgetary measures provided for period Q4 2020–Q4 2021, September 2020 Types of measures Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Percentage of measures with no end-date available Total amount of measures (EUR billion) Moratoria 17% 22% 0.4% 5% 55% 838 Public guarantees 63% 2% 21% 3% 11% 1,580 Public loans 93% 0.4% 6% 57 Direct grants 51% 6% 3% 9% 32% 327 Tax deferrals 10% 28% 14% 49% 170 Tax relief 45% 14% 4% 19% 18% 75 Public support for credit insurance 227 Total (EUR billion)1,411 293 368 44 90 1,067 3,274 Total without moratoria (EUR billion) 1,270 109 364 693 2,436 Source: ESRB Working Group Members (2021,p.55). Fiscal-Budgetary Measures to the COVID-19 Crisis. Evidence from EU Countries 139 Regarding the budgetary measures on the revenue side, Table 3 provides an overview of the tax policy measures that EU countries have implemented in response to the COVID-19 pandemic. Thus, the table highlights the types of tax that have been reformed for each EU country during the immediate crisis phase. In this context, we can notice that the personal income tax (PIT), corporate income tax (CIT), and value added tax (VAT)have been the most reformed taxes. Regarding the expenditure side of the budgetary measures, we extracted the policy measures from the Report of IMF (IMF Fiscal Affairs, 2020)and we highlighted for the case of EU countries. The most common measures (Table 4)were providing support through direct lending, loan guarantees, capital injection (in Italy), and deferral of utility and rent payments (France and Spain). In some EU countries, the support provided in the form of wage subsidies (Austria, France,Denmark,Estonia,Ireland,andItaly)is also mentioned. It is considered that expenditure measures are more effective for offering targeted support to firms particularly hard hit by the crisis, having difficulties in accessing the Table 3: Tax policy measures in EU, by tax type Country Personal income tax (PIT) Corporate income tax (CIT) Social security contributio ns (SSCs) Property taxes Value Added Tax (VAT) Other consumption taxes Other Austria 5 1 2 1 2 Belgium 2 1 4 1 7 11 Bulgaria 1 1 1 1 2 Croatia 1 1 1 Cyprus 1 1 4 Czech Republic 3 3 3 4 Denmark 1 4 Estonia 2 9 Finland 2 1 France 1 1 5 1 6 Germany 4 4 1 6 11 Greece 1 3 1 4 17 Hungary 2 4 1 1 8 Ireland 1 3 1 1 2 Italy 3 1 2 1 2 1 14 Latvia 1 1 Lithuania 1 3 6 Luxembourg 1 1 1 8 Malta 1 2 1 7 Netherlands 1 3 1 3 6 Poland 16 15 5 2 9 16 Portugal 1 2 3 5 6 Romania 3 1 1 Slovak Republic 1 4 2 2 Slovenia 4 1 12 Spain 3 4 3 1 2 1 6 Sweden 1 1 2 1 13 Source: author elaboration from OECD (2020). Overview of Country Tax Policy measures in response to COVID-19 crisis. Retrieved from: http://www.oecd.org/tax/tax-policy/#d.en.194478. 140 Adina Dornean and Dumitru-Cristian Oanea financial system, or not included in the tax system. Also, it is important to mention that these types of expenditure support are typically temporary and for short-term. Resuming, governments offered support to address the economic and social challenges of the COVID-19 crisis, and they are using fiscal measures that take various forms: transfers or liquidity support and wage subsidies as most common from the side of expenditure policy, and tax deferrals, as the most applied measure from the side of tax policy. European Commission estimated the cost of these measures (Table 5)taken by EU member states at 3.8% of GDP in 2020 for the discretionary fiscal measures, which are added to the impact of automatic stabilisers estimated at around 4% of GDP in the same year (European Commission, 2021, March 3). From the side of expenditure measures, the expenditure measures in other areas (compensations to specific sectors for income losses, as well as short-time work schemes)represented 2.7% of GDP, while the tax relief measures accounted for 0.4% of GDP. Also, the EU countries offered important liquidity support (around 19% of GDP), mostly in the form of public guarantees. There have been similarities as well as differences between fiscal packages across EU countries. The measures introduced to support businesses have been fairly similar across countries, with a strong focus on tax payment deferrals and transfers to firms. Thus, in the run-up to normality, fiscal policies will continue to play a key role and could undergo major changes globally. The differences between countries come from the number of discretionary measures. According to the European Fiscal Monitor (EU Independent Fiscal Institutions, 2020), Lithuania has the largest relative amount of discretionary Table 4: Expenditure policy responses to COVID-19 outbreak Measures Targeted population Targeting method Countries/regions Supporting businesses Loans, guarantees, and capital injection Hard hit businesses Place-based targeting Italy SMEs directly or institutions that they worked with Italy and Spain Deferral of payments such as utilities, rents, or taxes Hard hit businesses SMEs France and Spain Preserving employment linkages Wage subsidies Workers facing layoffsor reduction in hours For workers whose wages are below a certain level Austria and France Workers facing layoffsor reduction in hours Typically targeted at certain firms or workers to keep fiscal cost low Denmark, Estonia, and Ireland Employment and wage restrictions Workers facing layoffsor reduction in hours Universal Italy Source: International Monetary Fund (IMF)Fiscal Affairs (2020). Expenditure policies in support of firms and households. Table 5: Overview of national fiscal-budgetary measures in response to the COVID-19 pandemic 2020 2020–2021 2020–2022 EU 27 bln EUR % of GDP bln EUR % of GDP bln EUR % of GDP A. Measures with a direct budgetary impact 497.8 3.8 364.7 2.6 83.1 0.6 1. Expenditure 438.5 3.3 322.2 2.3 65.9 0.4 a)Health care 80.8 0.6 58.9 0.4 14.9 0.1 b)Other 363.0 2.7 264.5 1.9 52.3 0.4 2. Revenue 59.3 0.4 42.5 0.3 14.1 0.1 B. Automatic stabilisers ±4 C. Liquidity measures without a direct budgetary impact 2505.9 18.9 1. Tax deferrals 206.5 1.6 2. Public guarantees (available framework)1877.0 14.2 3. Others 422.4 3.2 Source: European Commission (2021, March 3). One year since the outbreak of COVID-19: fiscal policy response. Fiscal-Budgetary Measures to the COVID-19 Crisis. Evidence from EU Countries 141 measures (about 21% of GDP), about 20% of which are fiscal expenditures and about 1% of tax relief. Austria (12% of GDP),Cyprus(10%),Germany(11%),andSweden (12%)are the four other countries that have so far committed more than 10% of GDP in direct expenditures. The smallest packages of discretionary measures were introduced in Bulgaria (2.1%),Romania(1.7%),andSlovakia (1.5%). COVID-19 had a major economic and budgetary impact on European countries. Economies shrank rapidly in 2020 and the recovery remains incomplete. Governments have responded with large-scale spending measures, particularly to support employment and household incomes, as well as allowing automatic stabilisers to operate (EU Independent Fiscal Institutions, 2021).Ofcourse,theimpactofallthese measures will vary across countries and across time and will depend on the effectiveness of the policy responses taken to limit the economic impact of the crisis and on international transmission channels (OECD, 2020). 3 Literature Review This section is intended to establish a foundational view of the study’s topic, based on the review of literature. It is divided into two areas of interest, the first highlights the role of fiscal policy for stabilising economies affected by crisis and the second discusses the efficiency of the fiscal stimulus programs implemented by governments around the world to overcome the repercussions of the COVID-19 pandemic. Regarding fiscal policy, in the theoretical and empirical literature there is a consensus about its role in the stabilisation of economic activity affected by recession (Arestis, 2012;Coenen,Kilponen,&Trabandt,2016;Fuss,Whalen, & Hill, 2020; Mehrotra, 2018; OECD, 2009), which represents the main concern of this study. The fiscal policy exercises the stabilisation function through its instruments (taxation or government expenditure)and its effectiveness, reflected in the change in output, and can be measured by fiscal multipliers, namely spending and tax multipliers. With regard to fiscal multipliers there is an important number of studies which discuss their efficiency in different conditions, such as normal condition or crisis condition as it was in the 2008 global financial crisis when the discussion about the efficiency of fiscal measures to overcome the crisis and to improve the growth of the economy became a main topic in the research papers. Thus, under normal circumstances, fiscal multipliers may be around unity for government spending and about half (0.5)for tax measures, although in the case of open economies the values of this multipliers register lower values. The OECD Report (OECD, 2009)mentioned that in the context of the global crisis, it was difficult to dimension the effectiveness of the fiscal policy in boosting activity, measured by fiscal multipliers. Even so, the OECD Report (OECD, 2009)suggested that in the firstyear government spending, multiplier was slightly greater than unity, while the tax cut multiplier was around half of that. This means that public expenditure, namely public investment, has the largest multiplier and the greatest impact on the economic growth in short-term, higher than that of tax cuts or direct aid to households, this finding was also supported by Coenen et al. (2016).In the case of tax cuts, the fiscal multiplier could be greater and the measures will be most effective if these measures are targeted at households that are likely to be liquidity-constrained. In 2008 global financial crisis, the majority of fiscal measures taken to stimulate the economy were aimed at supporting household purchasing power, either by increasing income, reducing taxes, or providing benefits to stimulate consumption. The expected effect (increase in consumption which had to stimulate companies to increase their supply accompanied by the increase in the employment rate)did not occur because the increase in uncertainty about future income and higher risk of unemployment determined people to be more cautious and they preferred not to increase consumption but to increase savings (OECD, 2009). In the current context characterised by COVID-19 crisis, the measures consisting of targeted transfers to certain households, such as low-income families or the unemployed, seem to have a stronger impact as they target households with a higher propensity to consume (Siddik, 2020). Compared to global financial crisis from 2008, when fiscal packages were expansionary in most OECD countries but also restrictive in few countries (Hungary, Iceland, and Ireland)(OECD, 2009), in the context of COVID-19, governments applied only expansionary fiscal packages, considering the impact of expansionary fiscal measures on the economic activity, as was highlighted in the literature (Bouabdallah et al., 2020; Coenen et al., 2010, 2016; Crespo Cuaresma et al., 2011; Fuss et al., 2020; In’tVeld et al., 2013). Fiscal policy is a strong macroeconomic stabilisation instrument, especially when it is coordinated with monetary policy and also with financial stability policies (Arestis, 2012). Recent studies regarding fiscal multipliers showed that (directly relevant in the context of discretionary 142 Adina Dornean and Dumitru-Cristian Oanea measures)most model-based estimates for a 1-year temporary fiscal shock with no monetary policy accommodationhoveraround1forexpenditureitemssuchasgovernment consumption and investment and are much lower, i.e. between 0.2 and 0.4 for general transfers and (direct and indirect)taxes. (Bouabdallah et al., 2020).Thismeans that fiscal multipliers are conventionally higher when monetary policy reaches the lower bound or the nominal interest rate is kept constant for a prolonged period of time (Christiano, Eichenbaum, & Rebelo, 2011, February; Coenen et al., 2010). The 2008 global financial crisis determined the researchers to question about the effectiveness of fiscal stimulus –additional government spending and/or tax relief –to mitigate the impact of a recession and stimulate economic recovery of the affected economies. The results do not converge to a single conclusion. There are studies (Barro & Redlick, 2011; Karabegović, Lammam, & Veldhuis, 2010; Ramey, 2011; Taylor, 2018)showing that stimulus package during the 2008–2009 recession failed to increase consumption and had little to no effect on economic growth. The explanation consists in the uncertainty about the private sector’sresponse to temporary fiscal actions and thus the response of the economy to fiscal impulses (Coenen et al., 2016). Contrary to these findings, Coenen et al. (2016)affirmed that the response of output to temporary fiscal stimulus measures depends on many factors, such as the type of fiscal instrument, the persistence of the fiscal stimulus, and the reaction of the monetary policy. Thus, fiscal measures which directly stimulate government consumption and investment or targeted transfers conduct to higher fiscal multipliers than tax cuts in the short run. Moreover, temporary and well-targeted expansionary fiscal measures on thesideofexpenditurewhichincreasecanberelatively effective in stimulating the economy. In this context, there is an agreement on the fact that fiscal measures have to be temporary and well targeted. Applying fiscal stimulus for a large period of time can lead to a persistent deterioration of the fiscal balance and less efficiency of the fiscal multipliers. According to Alesina, 2012, if this will occur, then it would be necessary to reduce government spending for reducing fiscal deficits following a recession. In other words, governments have to reduce their debt to GDP ratios in economically favourable times (after recession period)to give themselves fiscal space when stimulative actions are needed in a more difficult economic environment (Coenen et al., 2010), like this one determined by the sanitary crisis. Taking into account the lessons learned from 2008 global financial crisis, in the context characterized by COVID-19 epidemic, the authorities applied budgetary measure on both the revenue side and expenditure one. One of the papers by Cifuentes-Faura (2021)analysed the virus containment measures carried out by the EU countries most affected by the pandemic. His study comprised 11 EU countries (Austria, Belgium, Czech Republic, France, Germany, Greece, Hungary, Italy, Poland, Portugal, and Spain)and United Kingdom. The author investigated if the countries that anticipated taking restrictive measures managed to minimise the impact of the pandemic. His results showed that in the case of these countries, the impact was smaller. According to this result, CifuentesFaura (2021)proposed as solution the adoption of an expansive fiscal policy scenario, in line with a Keynesian vision, accompanied by an investment plan, which can contribute toafallinunemploymentandtoeconomicrecovery. Other authors (Razumovskaia, Yuzvovich, Kniazeva, Klimenko, & Shelyakin, 2020)tried to analyse the effectiveness of the adopted measures in the context of the COVID-19 pandemic only for those measures related to SMEs. Thus, using the Granger test and correlation analysis, they developed a cognitive –econometric model for assessing the effectiveness of the Russian governmental policies to support enterprises in the context of the pandemic situation. From the applied measures, the state funding resulted to be more effective and capable of restoring business activities of SMEs, but in order to obtain this result the volume of state funding should increase by 1.89–1.98 times. Also, the authors highlight the fact that the government should continue to implement measures, such as tax, administrative, banking, and financial support for SMEs to help them to deal with the negative impact of the COVID-19 pandemic. In another study, (Nikolajenko, Viederytė,Šneiderienė, &Aničas, 2021)the efficiency of the Lithuanian government intervention measures intended to support businesses affected by the first lockdown regime, which took place from 16 March, 2020 to 16 June, 2020, was examined. They obtained different results depending on who judged them. Thus, from the side of the initiator of the measure, the result was that the government’s actions were efficient, butfromthepointofviewofthebeneficiary, the efficiency was insufficient. A more comprehensive study (Vasiljeva et al., 2020) intended to develop a predictive model for assessing the impact of the COVID-19 pandemic on the economies of Eastern Europe. The countries included in the study were Belarus, Bulgaria, Czech Republic, Hungary, Moldova, Poland, Romania, Russia, Slovakia, and Ukraine. In their model, Vasiljeva et al. (2020)considered the opinion of Fiscal-Budgetary Measures to the COVID-19 Crisis. Evidence from EU Countries 143 leading rating agencies, which estimated that the economies of developing countries are more vulnerable to a deeper recession than those in the developed market. Thus, using this model they determined quantitative estimates of economic development, especially, changes in GDP growth rates over a period of 1 year, which makes it possible to determine and build strategies of economic management for a long period of time, in contrast to tactical forecasting models. Considering all the aspects mentioned above, we can assert that the fiscal measures were necessary to overcome the negative economic effect of the sanitary crisis and even if they were efficient, counteracting immediately the pandemic-related output loss and sustaining the recovery. Next the analysis conducted will assess its effectiveness. 4 Methodology 4.1 Data Considering the objective of this study, we analysed the macroeconomic and fiscal key indicators for EU countries for the period of 2000–2020, mainly GDP growth (% change in previous period), public debt (% from GDP), and Government balance (%fromGDP). We extracted the data from Eurostat database as quarterly values (European Commission, 2021). As expected, the COVID-19 pandemic had an immediate and very high effect on the economic growth. In 2020, the economic decrease was much higher than the value recorded during the global crisis period, 2008–2009 (Figure 1). Thus, during the 2008 crisis, EU 27 countries recorded a decrease of 2.9% in Q1-2009, but in 2020 –Q2, due to the lockdown measures taken by European countries, GDP recorded a decrease of 11.4%. This highlights the fact that after the economy suffered a sharp economic decline in Q1–Q2 of 2020, it then quickly recovered in Q3 and Q4, this evolution was confirmed also by the forecast of European Commission (European Commission, 2021, February 11). In order to emphasise the impact of COVID-19 on GDP growth, in Table 6 are presented, comparatively, the values (average, minimum, and maximum)registered for year 2020 and the values (average, minimum, and maximum) registered in the precedent two decades (2000–2019). In this context, trying to come with measures, which would decrease the pandemic effects, most countries applied appropriate fiscal and budgetary actions starting in the second part of Q1-2020 (EU Independent Fiscal Institutions, 2021). The main direction of most countries was to increase the budgetary expenses, especially for health, which led to an increase in public debt (Figure 2). This increase in public debt is most visible starting with 2020-Q2. According to Eurostat (Eurostat, 2021, February 10), the highest increase in public debt was recorded in Cyprus from 94% in 2019-Q4 to 119.5% in 2020-Q3. Similar increase is noticed in Italy (134.7% in 2019-Q4 to 154.2% in 2020-Q3),Greece(180.5% in 2019-Q4 to 199.9% in 2020-Q3),andSpain(95.5% in 2019-Q4 to 114.1% in 2020-Q3). On the other side, the smallest increases were recorded in Sweden (35.1% in 2019-Q4 to 38.4% in 2020-Q3), Luxembourg (22.0% in 2019-Q4 to 26.1% in 2020-Q3),andIreland(57.4% in 2019-Q4 to 62.0% in 2020-Q3). Increasing the public expenditure, but at the same time, also considering the decrease in income revenue -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 2000-Q1 2000-Q4 2001-Q3 2002-Q2 2003-Q1 2003-Q4 2004-Q3 2005-Q2 2006-Q1 2006-Q4 2007-Q3 2008-Q2 2009-Q1 2009-Q4 2010-Q3 2011-Q2 2012-Q1 2012-Q4 2013-Q3 2014-Q2 2015-Q1 2015-Q4 2016-Q3 2017-Q2 2018-Q1 2018-Q4 2019-Q3 2020-Q2 EU27 (black line) Financial Crisis 3 2 U U U 2 2 2 7 7 7 c c k k l l i i n n e e e ) ) ) ) COVIDMaximum Minimum Figure 1: GDP evolution (% change in previous period)by quarter (2000–2020). Source: Authors’elaboration based on data from Eurostat. Legend: Maximum–maximum value recorded within EU countries. Minimum–minimum value recorded within EU countries. EU 27 –average at EU 27 level. 144 Adina Dornean and Dumitru-Cristian Oanea https://ec.europa.eu/info/sites/info/files/policy_measures_ taken_against_the_spread_and_impact_of_the_coronavirus_ 14042020.pdf European Commission. 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