The fiscal response to the Covid-19 crisis in advanced and emerging market economies

Key takeaways

• The fiscal policy response to the Covid-19 crisis has been swift and strong, in tandem with monetary policy. Advanced economies (AEs) have deployed a much larger fiscal response than emerging market economies (EMEs).
• The lower incidence of the pandemic in EMEs does not fully explain the difference. A narrower fiscal policy space in EMEs, further reduced by the tightening of their financing conditions induced by the pandemic shock, has constrained their fiscal response.
• The size and composition of the fiscal response also depend on other factors such as the level of income and the strength of the social safety nets and automatic stabilisers.