Members of a monetary union have limited control over monetary policy. This can elevate the role of fiscal policy as the primary macroeconomic tool against country-specific shocks. This paper shows that there is an additional channel of transmission of fiscal policy in countries within a union via consumer sentiments. Incorporating data for the European Economic and Monetary union in a VAR model, I provide evidence that the sentiments channel for fiscal policy is strongly present in certain European countries but the effect is heterogeneous across countries. The strong response of sentiments to fiscal news makes fiscal consolidation more costly in relatively high debt euro area countries.

What do we know about fiscal response to the COVID-19 pandemic in its early phases? Does the government’s ideology matter for the scope of anti-crisis measures? There is a growing literature and public debate on the economic and social implications of COVID-19. However, we still know little about the drivers of particular reactions of governments to this extraordinary shock. In this paper, we apply econometric tools to analyze the relevance of government ideology regarding economic policies for anti-crisis fiscal packages enacted in 2020. The results imply that right-wing governments provide significantly bigger fiscal packages than those observed in countries ruled by other political parties. Different responses to the crisis are also noted for the wealthy and the Nordic countries.

The question of public investment has recently returned to the top of the EU policymaking agenda, signalling a shift away from austerity-era policies. Scholars have celebrated this renewed centrality of state investment as a kind of Keynesian revival, catalysed by the compounded crisis of the pandemic, climate change, and war. However, the specifics of this investment turn have seldom been analysed in any detail. We do so here using a critical lens, tracing the distributional and practical consequences of this turn in the evolution of EU governance over the past two decades. We argue that the particular investment paradigm which has emerged during this period favours supply-side interventions and sidelines alternatives within the framework of a discourse based on a distinction between growth-enhancing investment and unproductive consumption spending. We highlight how this analytically weak distinction serves to legitimise a supply-side strategy that limits the potentially transformative role of the fiscal state. Our findings reveal how this narrow approach to investment limits the state’s role to one of a facilitator of private capital, operating within existing fiscal constraints.

In this paper, we examine the role of state-owned enterprises (SOEs) in the transmission of fiscal policy shocks in China, combining a structural VAR with macroeconomic data and a panel model with firm-level data. We first identify two types of structural fiscal shocks using a Bayesian SVAR with sign restrictions and informative priors on structural elasticities: (1) stimulus shocks, defined as deviations from a policy rule for the budget deficit, and (2) government size shocks, which reflect changes in taxes not necessarily affecting the deficit. These shocks are then incorporated into a local projections framework using firm-level data. Our analysis reveals that SOEs respond fundamentally differently from non-SOEs to fiscal shocks. The results suggest that SOEs are not in strict competition with non-SOEs for government resources: both types of firms benefit from fiscal stimulus, yet SOEs are the ones predominantly subject to crowding out when the size of the government sector expands. At the same time, SOEs in strategic industries consistently receive government support under both government size shocks and tax-cut-led stimulus shocks. Moreover, in nonstrategic sectors, SOE investment exhibits a leading effect over non-SOE investment under tax-cut-led stimulus—an effect that vanishes under spending-led stimulus.

This paper examines how structural reforms can boost long-term growth and welfare in the U.S. economy. Using a model calibrated to historical data, we compare three reforms: reducing regulatory costs, increasing public investment, and eliminating rent-seeking. Our results show that all three improve welfare, but through different channels. Cutting regulatory burdens delivers quick efficiency gains with minimal adjustment costs. Raising public investment has the most substantial impact on growth and welfare, though it requires short-term trade-offs. Eliminating rent-seeking improves efficiency and leisure, but its growth effect is smaller. Overall, public investment emerges as the most powerful lever for growth, while regulatory simplification and institutional reform provide complementary benefits by reducing distortions, improving resource allocation, and reinforcing the efficiency gains from fiscal policy.

The article examines the tax policies the UK Labour government pursued in its first year in office in the context of its economic and fiscal inheritance. It presents the promises of the 2024 Labour Party Manifesto and the government’s main tax policies to June 2025. The article considers several possible interpretations of the government’s tax policies including the desire both to raise revenues and to establish fiscal credibility and assesses whether tax measures have been used to address social policy goals. The article concludes that, while cautious and even conservative, Labour’s approach to tax and tax policy making did not appear to be based on a cohesive plan, was not accompanied by a coherent or compelling narrative, and failed to seize the opportunity for a bolder strategy.

Since the Global Financial Crisis, the European Union (EU) has gone from crisis to crisis. The chronic growth and productivity problems have been compounded by the poor management of the Eurozone crisis, by the no-longer postponable green and digital transitions, and by the changing geopolitical environment, with the end of the old multilateral order. The European institutions still embed the principles of an old consensus based on market efficiency, and do not allow for macroeconomic and industrial policies for the structural transformation. We discuss possible reforms to realign the EU institutions with the needs and the challenges the bloc faces.

The article traces the trajectory of state activism in the EU and explores the institutional implications of its recent revival. It contends that, within the current European constitutional landscape, there is a strong demoicratic case for pursuing activist policies at the national level, with the EU serving as an enabler. Within the existing treaty framework, however, EU-enabled state activism may assume either an equalising or an asymmetric form. In the equalising mode, the EU helps narrow fiscal disparities among Member States, promoting a more balanced deployment of fiscal and industrial policies across the single market. In the asymmetric mode, by contrast, activist tools remain accessible primarily to Member States with substantial fiscal capacity. Crucially, the choice between these alternatives does not stem from democratic deliberation or political judgment, but rather from extant treaty constraints conceived at a time of subdued state interventionism. As a result, equalising EU-enabled state activism seems possible only in times of emergency, when EU institutions may temporarily loosen constitutional limits on national fiscal and industrial policy, adopt unconventional monetary measures, and muster the political consensus needed to approve significant fiscal programmes. In the absence of such emergencies, however, only the asymmetric form of state activism remains available – a mode of governance that poses serious risks to the integrity of the single market and to territorial cohesion. Thus, only treaty change, coupled with deeper political integration, could place state activism on a firmer footing and allow the EU to realise its equalising potential.

We explore the effects of fiscal policy shocks on aggregate output and inflation. We use the Bayesian econometric methodology of Baumeister and Hamilton applied to the fiscal structural vector autoregressive model to evaluate key elasticities and fiscal multipliers using U.S. data. In our baseline specification that ends before Covid pandemic, the government spending multiplier is equal to approximately $0.57$ and tax multiplier is approximately $-0.35$ after one year. The short-term output elasticity of government spending is statistically insignificant and the output elasticity of taxes is approximately equal to $2.26$.

This study utilizes a Bayesian Dynamic Stochastic General Equilibrium model, calibrated with Chinese data, to assess the impact of public investments, which account for about 16.2% of China’s GDP. Despite an expected public capital stock of 256% of GDP, based on a 4.6% depreciation rate and a 0.73 efficiency rate of public investment (emerging-economy estimate), the actual figure stands at 152%. This significant discrepancy underscores the inefficiencies in public investments, with 43% of public investment expenditures enhancing the capital stock. The output elasticity (productivity) of public capital is estimated at just 3%, substantially lower than the previously estimated 8% for emerging economies, and has declined to 2% in the post-2008 period. Simulations based on these efficiency and productivity metrics reveal that the output multiplier of public investment is 0.7. China’s public investments reduce TFP, crowd out private investment, and raise the public debt-to-GDP ratio in the medium term.