Anti-Crisis Fiscal Measures in the European Union during the COVID-19 Pandemic and their Impact on GDP

Abstract

The aim of this study is to analyze the connection between anti-crisis fiscal measures adopted by EU governments in response to the COVID-19 pandemic and these countries’ GDP growth. The study relies on methods of statistical analysis, including cluster analysis, to examine the challenges of forecasting tax revenue collections during the COVID-19 pandemic. It is possible to make preliminary conclusions regarding the relationship between fiscal anti-crisis measures in EU countries and these countries’ GDP growth even in the absence of the actual data. The study has revealed variations in forecast GDP growth caused by a higher than usual degree of uncertainty. The best way to minimize such variations is to constantly monitor the situation and adjust the forecast estimates depending on the changes in the relevant factors. The variations in forecast estimates can also stem from adjustments for the changes in tax revenues of EU countries implementing fiscal anti-crisis measures. Most EU countries resorted to such instruments as deferral of certain tax payments, temporary tax breaks, reduction of tax rates, tax loss carryforwards, cancellation or reductions of social contributions. The European leaders in terms of anti-crisis fiscal measures are the Czech Republic and Ireland – these countries used four out of five instruments and were followed by Austria, Hungary and the UK, which used three instruments. We also analyzed the coefficient of tax elasticity for European countries and demonstrated that tax reliefs (tax preferences) influence the level of tax revenue. The hypothesis that there is an indirect connection between the anti-crisis fiscal measures and GDP growth was confirmed. It is shown that clusters of EU countries grouped depending on their anti-crisis fiscal measures do not coincide with the clusters of countries grouped depending on their GDP growth estimates. Thus, a tentative forecast can be made that the fiscal anti-crisis measures taken by EU countries will not have a direct impact on their GDP growth. For citation Karpova V.V., Tischenko V.F., Ostapenko V.N., Ivanov Yu.B. Anti-Crisis Fiscal Measures in the European Union during the COVID-19 Pandemic and their Impact on GDP. Journal of Tax Reform . 2020;6(3):225–243. DOI: 10.15826/jtr.2020.6.3.083. Article info Received September 1, 2020 ; Revised October 5, 2020 ; Accepted October 20, 2020