Fiscal Policies during the Covid-19 Crisis in Austria – A Macroeconomic Assessment

The coronavirus pandemic and particularly the necessary containment measures resulted in an unprecedented slump in economic activity. In Austria, seasonally adjusted real GDP declined by 2.4 percent in the first quarter and plummeted by 11 percent in the second quarter 2020. In 2020 as a whole, according to the latest estimates (as of October 2021), the contraction amounted to 6.7 percent. Mid-March the first containment measures were put in place, and most of them were lifted again at the end of May. At the same time as the first lockdown was announced, the government adopted a large-scale fiscal policy package to cushion the economic impact of the containment measures. As further lockdowns became necessary during new Coronavirus waves, the government extended parts of the measures in November 2020 and in spring 2021. In the autumn of 2020, the Austrian Ministry of Finance commissioned a macroeconomic assessment of the fiscal policy measures from research institutes WIFO (Österreichisches Wirtschaftsforschungsintitut - Austrian Institute of Economic Research) and IHS (Institut für Höhere Studien - Institute for Advanced Studies). Parts of the measures, in particular the distributional and labour supply effects of the income tax reduction, were evaluated by the WIFO with a microsimulation model. Both WIFO and IHS used their respective macroeconometric models to assess the overall macroeconomic impacts of the measures. Detailed results of the evaluation can be found in Baumgartner et al. (2020). In this paper, results obtained with the IHS macroeconomic model are described.