Macroeconomic policy and policy spaces during the COVID-19 pandemic – case studies from Germany, Brazil and India

Abstract

Theoretical analysis, empirical development and case studies show that room to manoeuvre stabilising macroeconomic policies during the COVID-19 crisis in the years 2020 and 2021 were fundamentally different in the Global South and Global North. The latter used extensive discretionary fiscal and monetary policy, whereas the former used monetary policy only in a very limited way and fiscal policy to a much smaller extent than in the Global North. While the main reason for this difference is, inter alia, the position of countries in the global hierarchy of currencies, the political orientation of governments in general and towards COVID-19 also played a significant role. The income effects of the pandemic for the poor in Germany were moderate, but disastrous in the Global South, as evidenced by case studies on Brazil and especially India. As a result, the global pandemic added to the trend of increasing inequalities in income and wealth distribution, both within and between countries. Some shortcomings of policies during the pandemic include not raising taxes on higher income or wealth groups, implementing steps towards a global tax system or supporting international capital controls to increase the space for national policies.