Democracy and fiscal-policy responses to COVID-19

Vol: 
62/2021
Author name: 
Elgin C
Yalaman A
Yasar S
Year: 
2021
Month: 
July
Abstract: 

In this paper, we investigate the relationship between the level of democracy and fiscal-policy response to the economic crisis induced by the COVID-19 pandemic. We use a novel cross-country dataset of fiscal-policy responses with time variation. Our results suggest that more democratic countries adopted substantially larger fiscal-policy packages (in % GDP) and the gap regarding the size of packages between more democratic and less democratic countries widened over time. Moreover, our regressions with different measures of democracy as well as instrumental variable estimations support a robust and causal relationship between a higher level of democracy and a larger fiscal-package size.

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