Economic Development & Growth

This Policy Brief analyses the long-run effects of an economic decoupling between the political West (i.e. the EU, the US and their allies) and the East (first and foremost Russia and China). A decoupling of Russia from the US and its allies would have much more severe long-term impacts for real income in Russia (minus 9.7 percent) than in the US and its allies (minus 0.2 percent). The reason for the uneven distribution of costs lies primarily in Russia’s low economic importance compared with the US and its allies.

This article discusses the economic effects of a potential cut-off of the German economy from Russian energy imports. We show that the effects are likely to be substantial but manageable. In the short run, a stop of Russian energy imports would lead to a GDP decline in range between 0.5% and 3% (cf. the GDP decline in 2020 during the pandemic was 4.5%).

The Great Financial Crisis caused a deep recession and led to very large public deficits. When financial market tensions erupted, many European countries were forced to reduce their deficits. This ‘austerity’ is often credited with the disappointingly slow recovery during the years after the financial crisis. One reason for such a slow recovery could have been that the impact of a reduction in the fiscal deficits is larger than anticipated during a recession, especially if it is accompanied by financial market tensions. At the height of the financial crisis and in its immediate aftermath, this might not have been properly taken into account.

This EconPol Policy Report assesses the macroeconomic impact of fiscal policy measures introduced by the Austrian government during the Covid-19 crisis in 2020 and 2021. Large parts of the stimulus package aimed at stabilizing companies, employment and private households. According to the study short-term work schemes were particularly successful. Equally effective were measures supporting companies and the self-employed who were directly affected by the containment measures, e.g. liquidity support (fixed cost subsidies and loss compensations), tax reductions and tax deferrals. While support to private consumption generally is not the recommended fiscal policy reaction to a recession which is caused by government measures to restrict consumption possibilities, support to companies, employees and the self-employed who are affected by the closure of some businesses are appropriate, according to the study. At the same time, those companies that would have left the market anyway should not kept alive articifially, as this would hamper structural change. For the same reason, short-time work schemes should only be offered as long as the contaiment measures or other pandemic-related problems such as supply-chain disruptions prevail.