Crisis severity, fiscal capacity, and COVID-19 spending: a cross-country analysis

Abstract

The COVID-19 global pandemic has prompted a variety of fiscal policy responses from national governments around the world. This research constructs a panel data set of 170 countries to investigate the impact of fiscal capacity and COVID-19 crisis severity on government spending during the pandemic, after controlling for socio-economic, political, and institutional factors. Using cluster analysis and multivariate regression, the results show that COVID-19 fiscal spending increased with the expansion of the pandemic, although spending on COVID-19 tended to decrease somewhat over time. We also find that countries with stronger fiscal capacity were associated with higher fiscal spending during the pandemic. Thus, our study suggests that the severity of the pandemic combined with the fiscal capacity of countries shaped government spending on COVID-19.