Fiscal stimulus packages to COVID-19: The role of informality


Elgin C., Williams C. C., ÖZ YALAMAN G., YALAMAN A.

Journal of International Development, vol.34, no.4, pp.861-879, 2022 (SSCI) identifier identifier identifier

  • Publication Type: Article / Article
  • Volume: 34 Issue: 4
  • Publication Date: 2022
  • Doi Number: 10.1002/jid.3628
  • Journal Name: Journal of International Development
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, IBZ Online, International Bibliography of Social Sciences, ABI/INFORM, Business Source Elite, Business Source Premier, CAB Abstracts, EconLit, Educational research abstracts (ERA), Environment Index, Geobase, Index Islamicus, PAIS International, Political Science Complete, Public Affairs Index, Social services abstracts, Sociological abstracts, Veterinary Science Database, Worldwide Political Science Abstracts
  • Page Numbers: pp.861-879
  • Keywords: COVID-19, fiscal policy, informal sector, pandemic, shadow economy, POLICY, CYCLICALITY, MONETARY, ECONOMY
  • Eskisehir Osmangazi University Affiliated: Yes

Abstract

© 2022 John Wiley & Sons, Ltd.In this paper, we use a novel cross-country dataset to investigate the relationship between the prevalence of the shadow economy and fiscal policy responses to the economic crisis induced by the pandemic. The finding is that countries with a relatively larger shadow economy before the pandemic have adopted a smaller fiscal policy package. The results are robust to different econometric specifications, including an instrumental variable estimation. This reinforces the wider literature that countries (especially those with larger shadow economies) generally follow a procyclical policy as opposed to the optimal and countercyclical one.