The Covid-19 Pandemic Global Risks and Uncertainties
The Role of Fiscal Space on Responses to the Covid-19 Crisis
Aysel ArıkboğaThe immediate and multidimensional shocks caused by the COVID-19 pandemic have raised concerns across the world as a result of which almost all countries implemented containment measures and increased fiscal responses significantly. Countries with ample fiscal space have responded swiftly and the size of the fiscal responses were substantial compared to countries with limited fiscal space. The paper argues that to focus solely on fiscal sustainability in countries with limited fiscal space and the determination of the scope and magnitude of fiscal policy tools accordingly carry the risk of a long-lasting recession. It is also emphasized that the process of expanding fiscal space, either for responses to immediate shocks or for development objectives, can also pave the way for decreasing inequality if the fiscal space is generated through the productivity gains in the long run as a result of increasing qualified public health and education services and the restructuring of a more progressive tax system.
