Emerging fiscal health and governance concerns resulting from COVID-19 challenges

Abstract

PurposeThis study analyzes the scope and magnitude of the budgetary responses of 17 developed countries to the COVID-19 pandemic and examines whether policy responses in March–June, 2020 are correlated with economic and fiscal conditions in these countries. It also suggests a few foreseeable economic, budgetary and social challenges and a future research agenda for assessing the pandemic's impact on finance and governance.Design/methodology/approachThis study uses documents from different sources, including the IMF and the OECD, to analyze systematically the COVID-19 budgetary responses of different countries. It also uses data from the IMF and the European CDC to analyze the relationship between budgetary responses and the seriousness of the pandemic in different countries.FindingsThis study shows that budgetary and fiscal responses to the COVID-19 pandemic varied in magnitude but had many similarities in policy types across countries. The magnitude of the response is not significantly correlated with fiscal conditions but is positively correlated with the pandemic caseload and negatively with medium-term expenditure planning, healthcare spending and anticipated unemployment changes. The study concludes by discussing the medium- and long-term concerns of these policies, such as the growing debt concerns, the seeming irrelevancy of fiscal discipline in influencing the pandemic response, the setbacks on anti-poverty and equity enhancing initiatives in developing countries and the hidden social costs as a result of postponing the necessary responses to industrial restructuring and the global climate change problems.Research limitations/implicationsThis study offers an initial comparative analysis of COVID-19 budgetary responses among developed nations. It also provides a critical and long-term perspective of these policies. The study suggests what future research may do to analyze the factors that influence the magnitude of COVID-19 responses and the long-term social and political implications of these policies.Practical implicationsIt discusses the long-term concerns of COVID-19 budgetary responses and suggests policymakers to have more open and transparent debates about difficult choices. It provides examples of creative solutions in pandemic responses to transition to a future economy and society that can be more sustainable, resilient and equitable. It also urges policymakers to pay more attention to democratic governance challenges.Social implicationsThe study highlights a few social concerns about the budgetary responses so far, such as deteriorating pension funding gaps, setbacks on anti-poverty initiatives in developing countries and hidden social costs by postponing the necessary responses to industrial restructuring and global climate change problems. It also discusses how COVID-19 reveals a lot of inequity problems in society that need long-term budgetary investment.Originality/valueThis study offers a systematic comparative analysis of COVID-19 budgetary responses among developed nations. It also provides a critical and long-term perspective of these policies and challenges policymakers and budgeters to think more creatively to address foreseeable economic, budgetary and social challenges.