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Forum

Fiscal Stimulus: Lessons From the US to the EU?

With the American Rescue Plan, the US government has put in place a fiscal stimulus package worth 10% of GDP, to be followed by an equally large infrastructure package. In the EU, although the fiscal policy response has also been unprecedented, it is much smaller. As the effects of the pandemic on society and the economy are still fluid, economists and policymakers weigh their options and attempt to learn from previous recessions while looking forward to creating a coordinated response to the pandemic and beyond. On 3 June 2021, as part of the Centre for European Policy Studies’ annual flagship conference, the CEPS Ideas Lab, Intereconomics and the European Network for Economic and Fiscal Policy Research (EconPol) asked experts from both sides of the Atlantic to offer their insights on the potential lessons that could be learned for Europe. This Forum is the result of the session participants’ comments and continued discussion.

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Figure of the Month

Many families lost income from work, fewer received jobless benefits

Percent of families by household income in 2019

Percent of families by household income in 2019

The figure from Claudia Sahm’s Forum article COVID-19 Is Transforming Economic Policy in the United States shows that nearly half of US families lost income from employment during the crisis. While income loss was most common among low-income families, those with higher incomes were also negatively affected.

Article

Inflation Risk?

Inflation is on the rise again in the industrialised world. This has led to fears of a sustained surge in inflation. Paul de Grauwe argues that while such fears may make sense in the US, they do not in the eurozone, where the monetary-fiscal policy mix has been much less expansionary than in the US. The fear expressed by some that the monetary overhang from the large injections of liquidity through quantitative easing might lead to inflation in the eurozone does not stand up to scrutiny either.

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Forum

Fiscal Success During COVID-19 Says Believe the Good New

Too much blood in terms of unemployment and sweat in terms of intellectual effort have been spent trying to determine the amount of fiscal space that economies have. Our policy focus instead, writes Adam S. Posen, should be on what to do with the fiscal space that almost all advanced economies (and a surprising number of emerging market economies) actually have. The priority should be establishing a means to sustain and evaluate longer-term infrastructure (green) investment and to expand automatic stabilizers rather than spending more effort on fiscal rules and sustainability.

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Article

The Great COVID-19 Divergence

The COVID-19 pandemic has led to the biggest global recession since the Second World War. Forecasts show the EU underperforming economically relative to the US and China during 2019-2023. Southern European countries have been particularly strongly affected. Some sectors have been hit harder than others. Inequality could rise. The pandemic may lead to lasting changes in the economy. Policymakers must act to prevent lasting divergence within the EU and scarring due to the fallout from the pandemic, write Grégory Claeys, Zsolt Darvas, Maria Demertzis and Guntram Wolff.

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