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The Effects of the Global Pandemic Process on the Social and Economic Structure and Public Policies in Combating the Pandemic

by Murat Demir (Volume editor) Ali Burak AKSUNGUR (Volume editor)
Edited Collection 226 Pages

Summary

The COVID-19 affects both people’s health and socio-economic structures around the world. Measures were adopted to contain the pandemic suppressed economic activity, leading to stagnation and contraction. Such contractions impacted on employment; losing jobs and income levels turned the contractions into severe fiscal and economic crisis.
The study examines the effects of the pandemic on socio-economic structures and the effectiveness of public policies. It reveals that some countries successfully managed the pandemic while others lead to deepen its negative effects. Social and economic policies that were decisive in successes and failures are examined through comparative descriptive analyses within a framework in each chapter. This study is hoped to serve as a guide for policy-makers in such circumstances.

Table Of Content

  • Cover
  • Title
  • Copyright
  • About the editors
  • About the book
  • This eBook can be cited
  • Preface
  • Introduction
  • Table of Contents
  • Fiscal Policies Adopted during the Global Pandemic and Their Effectiveness (Murat Demir and Osman Geyik)
  • Impact of the Global COVID-19 Pandemic on Human Resource Management Practices of Businesses (Rıza Demir and Ahmet Cevat Acar)
  • Effects of COVID-19 on Turkish Higher Education (Fatih Sarıoğlu and Gözde Nalbant Efe)
  • The Global Economy during COVID-19 Pandemic: Realizations and Predictions (Erşan Sever and Merve Ay)
  • The COVID-19 Pandemic and Its Effects on Urban Life (Mithat Arman Karasu)
  • Administrative Measures Adopted in Response to the COVID-19 Pandemic and Their Effects (Abdullah Çelik and Ali Burak Aksungur)
  • Public Financial Management Responses to the COVID-19: General Overview and Policy Practices in Turkey (Tekin Akdemir)

Murat Demir* Osman Geyik**

Fiscal Policies Adopted during the Global Pandemic and Their Effectiveness

Abstract The outbreak, which was mostly regional and had limited effects at the beginning, soon became a pandemic on a global scale, affecting the entire world. The fact that COVID-19 has been a global pandemic, without a doubt, caused its social and economic outcomes to also be experienced on a global scale.

The fact that the pandemic has been threatening public health, as well as economic systems and functions, has made it difficult to fight it, making it a requirement to adopt public policies. Public policies and policy tools determined by the public have been the main driver of the response against the pandemic in almost every country. The success of measures adopted to combat the pandemic has been an area widely discussed recently. Similar measures in many countries have differed significantly. While some countries have been able to prevent deepening the crisis by managing the pandemic successfully, others have not been able to succeed despite adopting the same public policies, deepening the crisis. This study evaluates the COVID-19 pandemic and analyzed the fiscal policies adopted in China, the US, Germany, the UK, Turkey, and Spain to counter the pandemic and the effectiveness of these policies.

Keywords: Global pandemic, health services, fiscal policies in combating global pandemic, effectiveness of fiscal policies

INTRODUCTION

As the COVID-19 pandemic became global and started to affect social and economic functions, governments took action and adopted a number of decisions to prevent the spread of the virus and mitigate its effects. The public economy and the market economy have been intervened via measures such as allocating the necessary resources and supplying the additional medical devices and supplies to the healthcare industry, especially for vaccination efforts, supporting the ←17 | 18→industries and employees impacted by the pandemic economically, adopting administrative measures to prevent the spread of the virus, and offering low-interest rate loans to the private sector.

In this process, the need to use fiscal policies effectively to prevent social welfare losses and mitigate the impact of the COVID-19 pandemic has become a necessity. A considerable part of public policies adopted by states has been shaped and implemented through basic fiscal policy tools such as taxes and public expenditures. In this context, the fiscal policy tools in question can be considered as the most important weapon to mitigate the loss of those impacted by COVID-19.

The decline in employment and the stagnation of economic activities have negatively affected all macroeconomic indicators, while also putting great pressure on public finance. Such a conjuncture, in which fiscal discipline is extremely difficult to maintain, also adversely affects debt indicators, especially in developing countries where financial depth is shallow, further increasing the debt burden through high interest rates. During this period, the increase in poverty and the deepening of the injustice in income distribution made it necessary for states to be involved in the process, especially in terms of social transfers.

The pandemic has deeply affected and continues to affect national and global economies socially, financially, and economically. In an economy where employment is contracting and the economy is shrinking, declining tax revenues, rising public spending and debt burdens, as well as public finances and the public economy are also directly affected. As in previous pandemics, the role of public policies in combating the COVID-19 pandemic is, without a doubt, very important. The basic question here is: what should be the composition of fiscal policies, which is an essential item that will guide public policies in this process? While it is extremely difficult to introduce a set of fiscal policies that will meet the expectations of the private sector, society and the state in solving existing economic and financial problems, especially in developing countries with a number of structural problems, such as Turkey, it will undoubtedly not be easy to develop a set of fiscal policies that will also solve the problems brought about by the pandemic.

Pandemics, which have the potential to cause a major economic crisis, are difficult for public and private sectors to manage as they lead to internal and external uncertainties by means of direct and indirect effects. The pandemic affects public and private sectors differently; there are also different levels of effect at different sections of sectors. This level of effect will surely be shaped by how successfully the pandemic is managed.←18 | 19→

The pandemic can be contained without deepening it through public interventions with timely and correct policy instruments. However, delayed public policies that are adopted with the wrong policy instruments deepen the crisis, disrupt the functioning of the social and economic structure, and impose a heavy burden on the private sector.

1. Global Pandemic as a Public Matter

In terms of its economic and social effects, the COVID-19 pandemic has become quite destructive. The COVID-19 pandemic has a very different nature compared to previous ones (Atkeson, 2020). The pandemic has first threatened public health and then damaged the economy, which forced states to introduce comprehensive policies. The COVID-19 pandemic is infectious both in terms of economic problems and health-related problems (Baldwin and Mauro, 2020). The fact that states have had to introduce comprehensive policies to combat the pandemic has imposed more burden on budgets, leading to more economic problems. Tight relationships among countries and difficulty in controlling human mobility due to globalization have made it a challenge to respond to the pandemic. The fact that the pandemic has threatened public health and disrupted the functioning of the economy has turned it into a public problem and made comprehensive public policies necessary. Both the International Monetary Fund (IMF) and the World Health Organization (WHO) have made comprehensive analyses on the pandemic, looking at its global impact. The report, published by the IMF (2020), noted that the COVID-19 pandemic has not only represented a global public health emergency but has also brought about an international economic emergency due to its negative impact on public finances. COVID-19 is more fatal than seasonal flu and at least ten times more contagious than SARS. For this reason, it has great potential to harm public health by rapidly spreading in both developed and developing countries (WHO, 2020; Wilder-Smith et al., 2020).

2. Social and Economic Effects of the Global Pandemic

The COVID-19 pandemic, which has affected the entire world, has a much different effect than other outbreaks, as it has led to not only health-related problems but also economic problems. Expectations that the pandemic would cause a global recession have been realized, and there has been a significant contraction in the global economy (Chakraborty and Thomas, 2020). In particular, countries leading the world economy, such as China and the United States, ←19 | 20→have been significantly affected by this pandemic, which has led to disruptions in supply chains, which, in turn, has indirectly affected other countries. For the first quarter of 2020, it is estimated that the contraction in GDP growth of China and the United States will be much worse than in 2008 (Goldman, 2020). Developments and macroeconomic indicators have shown that the economic and financial effects of COVID-19 are much heavier than those of the 2008 global financial crisis and that a global recession is possible in 2020 (Anderson et al. 2020).

A study conducted by Gopinath (2020) and Furman (2020) concluded that COVID-19 caused supply and demand shocks, leading to a decline in work opportunities for individuals and production capacities of companies. Identifying the appropriate monetary and fiscal policies to combat the new economic and fiscal symptoms that will emerge after COVID-19, especially the economic recession, will be the areas of work that economic administrations will first focus on and the issues that will be the most challenging. The restrictions imposed by the pandemic have led to a decrease in all sectors of the national and global economy and the labor force, and many people have lost their jobs (Nicola et al., 2020).

The ongoing COVID-19 pandemic has also caused widespread destruction in the world’s advanced economies. For this reason, governments all over the world have been introducing stimulus packages to help protect households and balance sheets of companies. The shock caused by the pandemic has also led to a considerable rise in the rate of unemployment. Faria-e Castro developed a simulation to measure the effectiveness of fiscal policies. In the study, the service industry, which was suddenly closed during the pandemic, was included in the modeling, and it was found that the closure of the service industry deeply affected others. It was also found that the contraction in the real economy affected the financial sector, which, in turn, had reverberations in real economy. When the expansion of unemployment insurance coverage, tax cuts, unconditional transfers and wage support provided in the service sector were included in the simulation, it was concluded that the increase in unemployment disrupted the financial balances and the recession could not be avoided despite intensive public support. Liquidity support for firms has shown to yield more positive results in terms of balancing income and employment (Faria-e Castro, 2021).

Economic restrictions imposed due to the COVID-19 pandemic have led to considerable income losses for low-income households. Those with low income have also been the ones most negatively affected in terms of employment (Auderbach et al., 2020).←20 | 21→

Many studies have shown the importance of public support in mitigating the effects of the pandemic, especially in developing countries. In some of these studies, it was found that transfers to households had more impact on social structures, while transfers to companies had more impact on financial structures and are decisive in preventing the deepening of the crisis (Fairlie, 2020).

Restrictions imposed due to COVID-19 have had unwanted consequences on the income of households and an unexpected increase in the cost of businesses. The effects of cost increases in an economic structure with shrinking demand have negatively impacted all macroeconomic sizes. There is no doubt that state intervention is a necessity in managing such a process in which many economic variables are impacted (Goolsbee and Syverson, 2020).

Any failure to manage the response to the COVID-19 pandemic has the potential to cause industries to collapse (for example, airline, tourism and accommodation services) by putting pressure on the real sector through financial crises. Economic and financial crises brought about by the pandemic will affect the entire global economy at micro and macroeconomic levels and with economic, financial, social, and political aspects, representing in the form of welfare loss in developed countries, and of increase in poverty in developing countries (Furman, 2020; Galí, 2020; Odendahl and Springford, 2020).

Pandemic response takes place under much more difficult conditions in developing countries that have problems with public financing, financing growth and development, and have basic structural economic issues such as inflation and unemployment. As is known, such countries experience significant difficulties in combating private sector savings deficits, public sector deficits, and foreign trade deficits. The contraction of the economy due to the pandemic and public policies adopted to reduce the losses caused by this contraction is putting heavy pressure on public finances. In a contracting economy, there is a reduction in all public revenues, especially tax revenues, and social transfers to households and sectors negatively affected by the pandemic are rapidly increasing public spending. This process, which disrupts the balance of public finance, creates new financing problems, increasing the borrowing requirement of the public sector and raising borrowing costs through interest rates.

Fighting the pandemic undoubtedly has many dimensions. Social demands and expectations of the public affected by the pandemic, demands and expectations of industries affected by the pandemic, and demands, expectations, priorities of the state having to mitigate the impact of the pandemic on public finances have required multidimensional measures against the pandemic. In addition, it is safe to say that things are much more difficult for countries that already deal with macroeconomic structural problems. Under these critical ←21 | 22→conditions, it is extremely difficult to manage the social and economic structure without being affected by the pandemic. What is important here is the ability to manage the crisis without deepening it.

Besides the problems it poses, the pandemic also offers a number of opportunities, albeit at a more limited level. For example, economic challenges experienced by China due to the global pandemic and their reflection on the global supply chain have provided Turkey with important opportunities. During this period, Turkey has become an important supplier of EU countries, especially for the manufacturing sector. Turkey’s unexpected growth rate of 1.8 % for 2020 can be tied to the growth in the manufacturing industry. Sectors created because of the pandemic, such as remote working models, especially distance education, have been important investment areas of this new period.

Although expectations for 2021 suggest that a recovery will take place with the global pandemic under control, this will not be easy. The most important issue here is the necessity to control the pandemic with the same effectiveness and determination all across the world. Vaccination programs and other preventive healthcare services that will be provided only in developed countries will not be sufficient to combat this global pandemic. Inadequate vaccination programs and preventive healthcare services in less developed countries and developing countries will cause the pandemic to continue with newer variants of the virus. No doubt, in such a case, measures adopted by developed countries will also become controversial, and new variants of the virus will reduce the effectiveness of the entire response.

COVID-19 vaccines, which have been developed faster than expected, are used in many OECD countries under vaccination schemes set by the public sector. However, it is possible that demand for vaccines will surpass supply for some time. Current developments show that vaccination is performed in favor of developed countries while developing and less developed countries have significant challenges and limitations accessing vaccines. Eliminating this discrepancy and achieving vaccine justice have an important role in the response to the pandemic. It is important that measures adopted to combat a pandemic that can travel across borders are implemented in all countries with the same determination and content in terms of controlling the rate of spread of the pandemic and the effectiveness of the measures. Governments must therefore provide the necessary logistical and healthcare infrastructure by reallocating vaccines to areas where it is most needed, regardless of international borders (OECD, 2021).←22 | 23→

3. Fiscal Policy Measures Adopted during the Global Pandemic

There is intense debate over the effectiveness of conventional fiscal policies and fiscal policy instruments to combat COVID-19. COVID-19 affects almost every sector and every income level, creating direct and indirect effects on the economic, financial and social structure. Therefore, to combat COVID-19, many countries push the boundaries of fiscal policy, trying out new policies and policy instruments (Auerbach et al., 2020).

The implementation of fiscal policies, which have a pivotal role in combatting the global pandemic, causes additional burden on the budget, while the lack of such policies will deepen the economic and social impacts of the pandemic. A state’s deficiencies in the field of health or lack of investment during outbreaks cause people with low income to not adequately benefit from healthcare services. In this case, the state will not be able to meet social demands and expectations and fulfill the requirements of being a social state at a time when individual efforts are vain (Stiglitz, 1994).

Taken into consideration the countries analyzed under this study, it was concluded that fiscal policies adopted by states are concentrated in certain fields and show similarities. Although measuring the effects of these policies is not possible in the short term, it is possible to evaluate some of their effects. The goal of the fiscal policies adopted during this period has been to prevent sudden drops in employment, eliminate the problem of paying rent for business owners, who have had to suspend economic activities, prevent layoffs, and eliminate challenges before tax payment and loss of household income loss. In addition, allocating additional budget to finance increased health spending is also a priority of fiscal policies to counter the pandemic.

The question of how to develop a set of fiscal policies to counter the problems that arise during the pandemic is difficult to answer. There are differences as well as similarities between financial packages introduced by countries. One similar aspect of policy measures adopted by countries to support businesses has been the fact that they focused on tax deferrals and short-time working allowances. However, there have been significant differences between measures adopted to support households according to the level of development of countries (OECD, 2020).

The effects of the pandemic vary in almost every country. Some of the variables that influence the effectiveness of the pandemic response are the economic structures of countries, their average income levels, sectoral distribution of GDP, public financing structures, regimes, social cohesion and functions, public order, the roles and responsibilities of states in the overall ←23 | 24→economic structure, the roles and responsibilities of states in the healthcare industry, characteristics of private health insurance schemes, and demographic indicators.

While it was projected that more resource would be allocated for pandemic response and fiscal policies would be implemented more successfully in developed countries, where the macroeconomic structure and public finance indicators are robust, considerable decline has been experienced by many developed countries, including the US and the UK, in terms of growth and employment. In these countries, poor adherence to containment measures has rapidly increased the number of cases, and strict restrictions, especially curfews, have brought their economies to a standstill.

In many countries, the focal point of pandemic-time fiscal policies has been managing financing problems caused by declined public revenues and increased public spending. Without a doubt, the ability to manage the crisis, and the composition of resources to be provided to victims and the way these resources are provided have been priority areas. Determining which sector is affected by the crisis, how the sectors affected by the crisis affect others, and their impact on employees and foreign trade are among the issues that policy-makers have had difficulty dealing with during the pandemic.

Even in countries where the most liberal policies are in place, the state steers economic and social life as a producer and consumer, in addition to its role as a regulator and supervisor. The fluctuating course of the pandemic has been another issue that suppressed the effectiveness of fiscal policies. Usual delays in fiscal policies, combined with the uncertainty about the course of the pandemic have weakened the effectiveness of measures.

Table 1 shows that the average unemployment rate for OECD countries has increased by 30 % from 5.39 % in 2019 to 7.11 % in 2020. Developed OECD countries have managed to prevent layoffs by preventing the crisis to impact employment figures through unemployment funds and short-term work allowances. Of course, success here is closely related to the depth of the unemployment fund, the financial structure of social security systems and the state of public funding. It is safe to say that developing OECD countries that lack the sufficient depth in these areas are much more affected by the employment crisis.

In particular, unemployment rates have significantly risen during the pandemic in Chile, Estonia, Mexico, and Hungary. In some developed and developing countries, there has been an increase in unemployment rates due to working from home and flexible working arrangements.

Table 1: Employment Figures (2018–2020)

Countries

2018

2019

2020

Austria

4.86

4.51

5.39

Belgium

5.96

5.37

5.63

Canada

5.89

5.73

9.56

Chile

7.38

7.22

10.78

Czech Republic

2.27

2.02

2.55

Denmark

5.12

5.06

Details

Pages
226
ISBN (PDF)
9783631857281
ISBN (ePUB)
9783631859766
ISBN (MOBI)
9783631859773
ISBN (Softcover)
9783631856567
Language
English
Publication date
2021 (July)
Published
Berlin, Bern, Bruxelles, New York, Oxford, Warszawa, Wien, 2021. 226 pp., 13 fig. col., 14 fig. b/w, 34 tables.

Biographical notes

Murat Demir (Volume editor) Ali Burak AKSUNGUR (Volume editor)

Murat Demir is a professor in the public finance department at Harran University (Turkey). He has a PhD in public finance from Marmara University. Ali Burak Aksungur is a research assistant in the public administration department at Harran University. He took his master’s degree in political science and public administration from Selcuk University (Turkey).

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Title: The Effects of the Global Pandemic Process on the Social and Economic Structure and Public Policies in Combating the Pandemic