Fiscal policy responses to crises the social impacts

Counting the social impact

Lost in a lot of the discussion on fiscal-policy procyclicality has been the social impact of contractionary fiscal policy during recessions – things such as for example:

  • the poverty rate,
  • income inequality,
  • the unemployment rate, and
  • domestic conflict.

In a recently available research paper we look at the way the fiscal-policy responses to GDP crises have affected social indicators such as for example those in the above list (Vegh and Vuletin 2014). We find that contractionary fiscal policy during crises has tended to worsen social indicators both in Latin America and, recently, in the Eurozone, which calls into question recent claims on ‘expansionary fiscal austerity.’