Abstract
This analysis makes use of economic forecasts for 2020 issued by the European Commission in Autumn 2019 and Spring 2020, and of a counterfactual under a no-policy change assumption, to analyse the impact of the COVID-19 crisis on EU households´ income. Additionally, our analysis assesses the cushioning effect of discretionary fiscal policy measures taken by the EU Member States. We find that the COVID-19 pandemic is likely to affect significantly households’ disposable income in the EU, with lower income households being more severely hit. However, our results show that due to policy intervention, the impact of the crisis is expected to be similar to the one experienced during the 2008–2009 financial crisis. In detail, our results indicate that discretionary fiscal policy measures will play a significant cushioning role, reducing the size of the income loss (from −9.3% to −4.3% for the average equivalised disposable income), its regressivity and mitigating the poverty impact of the pandemic. We conclude that policy interventions are therefore instrumental in cushioning against the impact of the crisis on inequality and poverty.
Highlights
Preliminary indicators on job destruction and unemployment benefits claims across European Union (EU) countries suggest that the impact of the COVID-19 pandemic on households will likely be exceptionally high (OECD 2020)
This counterfactual no policy-change scenario is derived by estimating GDP growth and changes in employment if no discretionary policy measures had been taken to mitigate the socio-economic consequences of the COVID-19 pandemic, and only automatic stabilisers would be at play
On average, compared to a hypothetical 2020 scenario without COVID-19 pandemic, household income would fall by −9.3% due to the impact of COVID-19 without fiscal policy measures, while policy intervention reduces this impact to −4.3%
Summary
Preliminary indicators on job destruction and unemployment benefits claims across European Union (EU) countries suggest that the impact of the COVID-19 pandemic on households will likely be exceptionally high (OECD 2020). Findings suggest that the risk of job loss is highest in southern Europe and France (Doerr and Gambacorta 2020). Joyce and Xu (2020) find that low earners in the UK are seven times as likely as high earners to have worked in a sector shut down following the lockdown. Policies aimed at protecting those most directly hit by the crisis, either through discretionary measures (e.g., income subsidies or tax rebates), or through automatic stabilisation (e.g., unemployment benefits or lower taxes paid as a result of job loss and/or decrease in market incomes), could partly reduce the toll on household income and consumption.. Chetty et al (2020) find that stimulus payments to low-income households in the US sharply increased consumer spending.
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