Fiscal responses to COVID-19 outbreak for healthy economies: Modelling with big data analytics

Abstract

Fiscal responses to the COVID-19 crisis have varied a lot across countries. Using a panel of 127 countries over two separate subperiods between 2020 and 2021, this paper seeks to determine the extent that fiscal responses contributed to the spread and containment of the disease. The study first documents that rich countries, which had the largest total and health-related fiscal responses, achieved the lowest fatality rates, defined as the ratio of COVID-related deaths to cases, despite having the largest recorded numbers of cases and fatalities. The next most successful were less developed economies, whose smaller total fiscal responses included a larger health-related component than emerging market economies. The study used a promising big data analytics technology, the random forest algorithm, to determine which factors explained a country's fatality rate. The findings indicate that a country's fatality ratio over the next period can be almost entirely predicted by its economic development level, fiscal expenditure (both total and health-related), and initial fatality ratio. Finally, the study conducted a counterfactual exercise to show that, had less developed economies implemented the same fiscal responses as the rich (as a share of GDP), then their fatality ratios would have declined by 20.47% over the first period and 2.59% over the second one.