The fiscal response to the Covid-19 crisis in advanced and emerging market economies

The fiscal policy response to the Covid-19 crisis has been swift and strong, in tandem with monetary policy. Advanced economies (AEs) have deployed a much larger fiscal response than emerging market economies (EMEs). The lower incidence of the pandemic in EMEs does not fully explain the difference. A narrower fiscal policy space in EMEs, further reduced by the tightening of their financing conditions induced by the pandemic shock, has constrained their fiscal response. The size and composition of the fiscal response also depend on other factors such as the level of income and the strength of the social safety nets and automatic stabilisers.