Effectiveness of Public Spending before and during COVID-19 Pandemic

Abstract

The pandemic of COVID-19 influences all sectors of the economy. It caused decreasing in produced Gross domestic product (GDP) and higher unemployment. As it is known, to overcome this negative tendency, it is possible to put in practice monetary and fiscal instruments. During the pandemic, the government tried to slow down negative economic results through public spending. With them, the government looks to be increased aggregate demand in the economy and as a result-GDP raises and unemployment reduces. The research is based on created original model for testing the impact of total public spending, capital, salary, social insurance and care, for maintenance by a consolidated fiscal program on the value of GDP. The changes of GDP measure the effectiveness of public spending. The period of research is before and during the COVID-19 crisis (2019-2020) in the case of Bulgaria. Before the pandemic the analysis shows coefficient of determination for capital spending is more significant compare with all other types of public expenditure and these cost predetermine economic growth. During the pandemic of COVID-19 public spending has used as the main instrument to overcome the negative results for the economy. For this period it found an extremely strong impact of labor costs and social care expenditure on aggregate demand. They bring more positive results to be solved health issues, but not for faster recovery of the economy.