The impact of COVID-19 on households´ income in the EU

Abstract

This analysis makes use of economic forecasts for 2020 issued by the European Commission in Autumn 2019 and Spring 2020, and of a counterfactual under a no-policy change assumption, to analyse the impact of the COVID-19 crisis on EU households´ income. Additionally, our analysis assesses the cushioning effect of discretionary fiscal policy measures taken by the EU Member States. We find that the COVID-19 pandemic is likely to affect significantly households’ disposable income in the EU, with lower income households being more severely hit. However, our results show that due to policy intervention, the impact of the crisis is expected to be similar to the one experienced during the 2008–2009 financial crisis. In detail, our results indicate that discretionary fiscal policy measures will play a significant cushioning role, reducing the size of the income loss (from −9.3% to −4.3% for the average equivalised disposable income), its regressivity and mitigating the poverty impact of the pandemic. We conclude that policy interventions are therefore instrumental in cushioning against the impact of the crisis on inequality and poverty.

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Acknowledgements

We are thankful for comments on preliminary results received from Olivier Bontout, Peter Benczur, Daniel Daco, Lucie Davoine, Giulio Paso and Sergio Torrejón Pérez. The views expressed in this paper should not be attributed to the European Commission.

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Almeida, V., Barrios, S., Christl, M. et al. The impact of COVID-19 on households´ income in the EU. J Econ Inequal (2021). https://doi.org/10.1007/s10888-021-09485-8

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Keywords

  • COVID-19
  • Fiscal policy
  • Earnings subsidies
  • Income distribution
  • Unemployment