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Database
FISCAL STIMULUS –
STABILIZATION OF ECONOMIC
ACTIVITY IN THE EU
2.9 percent of annual GDP for 2009 and 2010 (compared to 2008). All in all the fiscal stimulus measures
have been nearly evenly split across the two years
with 1.5 percent of GDP in 2009 and 1.4 percent of
GDP in 2010 (European Commission 2010).
In response to the current crises, the European Economic Recovery Plan (EERP) was launched by the
European Commission in December 2008. The
strategic aims of the EERP have been: “to help
Europe to prepare to take advantage when growth
returns; speed up the shift towards a low carbon economy; lessen the human cost of the economic downturn and its impact on the most vulnerable” (European Commission 2009, 16). To reach these aims, the
EERP is based on two key pillars which are countercyclical macroeconomic responses to the crises (European Commission 2008):
In the EERP the European Commission has made
proposals for choosing the instruments for fiscal
stimulus from a range of options depending on country-specific circumstances. One of these proposals is
that the fiscal stimulus should mix revenue and expenditure instruments. Because of the different situations of member states the EERP have taken the
following measures into account:
• Support to household’s purchasing power. Reduction in taxes and social security contributions and
direct aid aimed at households, such as income
support for households, lowering taxes for households (incl. energy subsidies), supporting housing
or property markets and decreasing VAT.
• Increased spending on labour market policies,
such as wage subsidies and intensifying active labour market policies.
• Reduction of taxes, social security contributions
and other measures directly aimed at business,
such as tax breaks, earlier payment of VAT returns, facilitating company financing, state aid and
stepping up export promotion.
• Increased public investment, such as public investment in infrastructure, supporting investment
aimed at greening the economy and/or improving
energy efficiency.
1. The first pillar is a major injection of purchasing
power into the economy, to boost demand and
stimulate confidence. The EERP have thus called
for a timely, targeted and temporary fiscal stimulus of around EUR 200 billion or 1.5 percent of
EU GDP, within both national budgets (around
EUR 170 billion, 1.2 percent of GDP) and EU
and European Investment Bank budgets (around
EUR 30 billion, 0.3 percent of GDP).
2. The second pillar is grounded in the Lisbon strategy and based on the need to direct short-term
action towards implementing structural reforms
aimed at raising potential growth, promoting resilience, and reinforcing Europe’s competitiveness in the long term.
Table 1 and 2 summarize the fiscal stimulus measures adopted by the EU member states in 2009. The
actual budgetary stimulus packages introduced varied across member states, in part due to the fiscal
space available. While some countries were in a position to provide substantial support to their economies as they entered the recession with a strong fiscal position, others were and are in a more difficult
situation because of less determined consolidation
efforts in the past (European Commission 2010).
At the same time, the EERP acknowledged that not
all member states are in the same position. The fiscal
room for manoeuvre differed – some countries have
more leeway than others; in particular external and
internal imbalances exerted more pressure on some
countries than others. In this respect, the EERP clearly indicated that for those member states that are facing significant external and internal imbalances, budgetary policy should essentially aim at correcting
these imbalances (European Commission 2009).
As the tables indicate the great majority of member
states have adopted increases in social expenditure.
Only three countries (namely Hungary, Ireland and
Poland) have actually reduced social expenditure.
Other countries tried to stimulate their economies
by reducing the VAT rate – and many sought to offset the costs of a stimulus elsewhere by increasing
the rate. Many other countries have also reduced
income taxes and other taxes on individuals.
The fiscal stimulus was introduced as an additional
measure, over and above the important role automatic stabilizers play in the EU, to provide public
support to the financial sector. Overall, in gross
terms (before taking into account fiscal consolidation measures implemented in various countries at
the same time) the fiscal stimulus measures, taken
or planned, by member states amount to a total of
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CESifo DICE Report 3/2010
Database
2010, 89). However, once economic growth resumes
on a durable basis, such measures if left in place
would add up according to the European Commission (2010) to an intolerable burden for public finances. Fiscal stimulus measures could also hinder adjustment processes within and across sectors by subsidizing existing firms and specific productions. As
regards to the European Commission (2010) the fiscal stimulus measures are planned to expire by 2011.
Similar considerations apply to business investments. But in general, in setting fiscal stimulus packages, the governments of the member states appear
to have targeted personal consumption more than
business investment. While 17 countries did make reforms to business taxation, only 10 of these represented a cut, while 7 actually increased their tax
taken from business (EEAG Report 2010, 84).
Furthermore, many countries increased public investment or provided additional support for infrastructure spending and research. Overall, the tables
suggest that there is no consensus among the EU
member states on the appropriate fiscal response to
the current financial crises.
A. R.
References
CESifo Group Munich (2010), EEAG Report of the European
Economy 2010.
European Commission (2008), Communication from the Commission
to the European Council: A European Economic Recovery Plan.
In summary, these temporary measures seem to have
had positive effects on employment and economic
activity during the crisis, by supporting private demand and maintaining fundamentally sound activities and jobs that could otherwise have been lost
(European Commission 2010, 19; EEAG Report
European Commission (2009), Public Finances in EMU 2009,
European Commission Directorate-General for Economic and
Financial Affairs.
European Commission (2010), Public Finances in EMU 2010,
European Commission Directorate-General for Economic and
Financial Affairs.
Table 1
Fiscal stimulus measures in Europe, 2009 – tax revenue measures
Personal income tax, including
social contributions, capital
gains tax and dividends taxes
Austria
Corporate income tax
and other business taxes
Income tax reduction (–0.7%
of GDP);
VAT and other
indirect taxes
Reduction of VAT
on pharmaceuticals
(–0.1% of GDP)
Increased tax allowances for
children (–0.1% of GDP);
Other taxes
Repeal of university
fees (–0.1% of GDP)
Tax exemptions (–0.1% of
GDP);
Reduction in unemployment
insurance contributions (–0.1%
of GDP)
Belgium
Flemish reduction of personal
income taxes (–0.2% of GDP);
VAT reduction for
residential construction (–0.1% of
GDP)
Federal measures to reduce
personal income taxes (–0.1%
of GDP)
Bulgaria
Increase in the mandatory
minimum insured income
thresholds (0.7% of GDP);
Reduction in the pension social
contribution rate by 4% (–0.9%
of GDP)
Cyprus
CESifo DICE Report 3/2010
Application of the reduced
VAT rate on hotel accommodation (<0.1% of GDP);
Reduction of the corporate tax rate for semigovernmental organizaNo dividend income from semi- tions from 25% to 10%
to harmonize it with the
governmental organizations
one applied to private
(–0.5% of GDP);
enterprises (–0.2% of
GDP)
62
Increase in excise
rates on kerosene,
coal, electricity for
economic and
administrative
needs and cigarettes
(0.3% of GDP)
Increase of the health
care contribution rate
by 2% (0.5% of
GDP);
Increase of the excise duty on petrol,
due to the expiration of the transitional period
granted upon EU
accession (0.15% of
GDP)
Reduction of airport
landing fees levied on
airline companies and
cancellation of overnight stay fees levied
by local authorities on
hoteliers (–0.12% of
GDP)
Increase in property
valuations for local
property taxes (0.3%
of GDP)
Database
Table 1 (continued)
Personal income tax, including
social contributions, capital
gains tax and dividends taxes
Corporate income tax
and other business taxes
Czech
Republic
Reduced social security contribution (–0.5% of GDP)
Write-down of capital
goods (–0.2% of GDP)
Denmark
Income tax cuts (–0,3% of
GDP)
Tax credit for companies
(–0.1% of GDP)
Estonia
Increase in unemployment
insurance contribution rate
(0.3% of GDP)
VAT and other
indirect taxes
Other taxes
Increase in social tax
minimum contribution basis (0.5% of
GDP);
Suspension of state
contributions to the
mandatory funded
pension scheme
(0.6% of GDP)
Finland
Increase of alcohol
and tobacco excises
(0.05% of GDP)
Income tax cuts (–0.7% of
GDP);
Reduced tax on pension income
(–0.1% of GDP);
Increase in various tax deductibles (–0.1% of GDP)
France
New tax on capital gains (0.1%
of GDP);
Acceleration of government payments to
Change in the dividend taxation corporations (–0.3% of
GDP);
(0.1% of GDP)
Fiscal package
(–0.1% of GDP)
Increase of the tax on
the turnover of complementary insurance and
on pharmaceutical companies (0.1% of GDP)
Germany
Income support, incl. lower
income tax (0.2% of GDP);
Re-introduction of computer
allowance (–0.1% of GDP);
Support for private
investment, incl. more
favourable depreciation
rules (–0.1% of GDP)
Reduction of social contributions rates (–0.3% of GDP)
Greece
One-off supplementary tax
contribution on taxpayers with
annual income above EUR
60,000 (>0.1% of GDP);
Increase in the advanced
payment rate for enterprises to 80% from 65%
(0.15% of GDP)
Increase in the
Tax settlement
excise duties of
(0.5% of GDP)
tobacco and alcohol
(0.15% of GDP)
Introduction of a new tax on
stock options, in line with rules
pertaining to wage income
(< 0.1% of GDP);
Introduction of a tax rate of
10% on dividends; the same
rate holds for capital gains from
selling stocks (<0.1% of GDP)
Temporary 8% tax
(surcharge) on the
profits of energy companies (0.1% of GDP)
Hungary
Ireland
Introduction of a
duty-free limit of
succession of HUF
20 million (~EUR
70,000; 0.04% of
GDP)
Widening of standard rate tax
band (–0.1% of GDP);
Stricter rules for interest Increase in standard Introduction of
related tax relief (0.1% VAT rate (0.1% of healthy levy, change
of GDP);
GDP);
in pay related social
Introduction of income levy
insurance (0.5% of
(0.7% of GDP);
Advancing corporation
Increase in excise
GDP);
and
capital
gains
tax
duties
(0.3%
of
Stricter rules for interest repayment dates (0.3% of GDP)
Transfer of pension
lated tax relief (0.1% of GDP);
fund assets (0.3% of
GDP)
Increase in capital gains tax
GDP);
rate (0.1% of GDP)
Reduction of stamp
duty top rate (–0.1%
of GDP)
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CESifo DICE Report 3/2010
Database
Table 1 (continued)
Personal income tax, including
social contributions, capital
gains tax and dividends taxes
Corporate income tax
and other business taxes
VAT and other
indirect taxes
Corporate income tax
relief (–0.1% of GDP);
Italy
Other taxes
Intensified fighting of
tax evasion/avoidance
(0.1% of GDP)
One-off tax on revaluation of company assets
(0.2% of GDP);
Taxes on energy/banking/
insurance sectors (0.3%
of GDP)
Latvia
Increase of excise
taxes on alcohol,
tobacco, petrol, and
certain nonalcoholic beverages
(0.74% of GDP)
Reduction of personal income
tax, increase of minimum
wage, increase of threshold for
personal income tax exemption
(0.63% of GDP);
Maintaining the rate of social
contribution accruing into the
state funded pension scheme
and increasing the minimum
wage (0.34% of GDP);
Increase of standard and reduced VAT rates (1.92% of
GDP)
Lithuania
Reduction of personal income
tax from 24 to 21% (–0.45% of
GDP);
Increase in excise
duties on fuel,
tobacco and alcohol
(0.65% of GDP)
Increase of corporate income
tax and tax on dividends from
15% to 20% (0.4% of GDP)
Luxembourg Indexation by 9% of personal
income tax brackets (0.9% of
GDP)
Malta
Replacement of the
tax reduction for
children with a tax
bonus (0.3% of
GDP)
Abolition of the “droit
d’apport” (tax paid on
the capital of a new
company or an increase
in the capital of an
existing one (0.3% of
GDP)
Widening of personal income
tax bands (-0.2% of GDP)
Increase in excise
duty (0.3% of
GDP)
Motor Vehicle Licences reform
(–0.1% of GDP);
Environmental
measure (0.1% of
GDP)
CESifo DICE Report 3/2010
Netherlands
Reduction in social contributions (–0.3% of GDP)
Accelerated depreciation for investments
(–0.2% of GDP)
Increase in excise
duties (0.1% of
GDP)
Poland
Personal income tax (–0.6% of
GDP)
Taxes on business
(–0.2% of GDP)
Excise duties (0.2%
of GDP)
Portugal
Temporary reduction of social Support for firms with
contributions for some selected liquidity problems
groups (–0.2% of GDP)
through changes in the
procedures and timing of
some tax payments
(–0.1% of GDP)
Reduction of the
VAT standard rate
by 1 percentagepoint (–0.15% of
GDP)
Lower tax burden
related to housing
assets (–0.1% of
GDP)
Romania
Increase of social contribution
rate (0.8% of GDP)
Bringing forward
the schedule to
increase excise
duties (0.1% of
GDP)
Updating the tax
base for local property, bringing to the
market value (0.1%
of GDP)
Slovak
Republic
Income tax (–0.2% of GDP);
Excise duties on
tobacco (0.2% of
GDP)
Changes in social contributions
and capital transfers from the
2nd pension pillar (0.4% of
GDP)
64
Lower health care
premiums (–0.1% of
GDP)
Database
Table 1 (continued)
Personal income tax, including
social contributions, capital
gains tax and dividends taxes
Slovenia
Elimination of payroll tax
(–0.6% of GDP)
Corporate income tax
and other business taxes
VAT and other
indirect taxes
Other taxes
Reduction of corporate Increase in excise
tax rate by 1 percentage duties (0.9% of
point (–0.1% of GDP);
GDP)
Additional investment
allowance for companies(–0.1% of GDP);
Additional investment
allowance for sole proprietors (–0.2% of
GDP)
Spain
Change of the
system of VAT
returns (-0.56% of
GDP);
Reduction in personal income
tax (–0.47% of GDP);
Inclusion of some professions to
social security system (0.17%
of GDP);
Increase of VAT
from 18 to 19%
(0.9% of GDP)
Ongoing pension reform
(2nd pillar; –0.3% of GDP)
Sweden
Lower taxes on earned income
(–0.5% of GDP);
Lower corporate income
tax (–0.2% of GDP);
Lower taxes on pensions
(–0.1% of GDP);
Changed under-pricing
rules for certain companies (0.2% of GDP);
Tax deductibility of home
improvement services (–0.1%
of GDP);
Lower social contributions
(–0.3% of GDP)
United
Kingdom
Lower income tax (–0.3% of
GDP)
Specific reduction of
tax withholdings to
taxpayers with mortgages (–0.15% of
GDP);
Abolition of the
wealth tax (–0.21%
of GDP)
Changed deductibility of
interest costs for companies (0.2% of GDP)
Deferral of business rate VAT rate reduction
increase (–0.1% of
(–0.6% of GDP);
GDP)
Tobacco and alcohol
duties (0.1% of
GDP)
Source: European Commission (2009, 198–260).
Table 2
Fiscal stimulus measures in Europe, 2009 – government expenditure measures
Public investment, support
for business, infrastructure
and research
Social expenditure
Other spending
Labour market package
– short-time work (0.1%
of GDP)
Austria
Increases in social benefits
(0.1% of GDP)
Belgium
Bulgaria
Housing, labour market,
education expenditure
Higher capital spending
(0.1% of GDP)
Reduction in the tax
wedge on labour through
subsidies (0.1% of
GDP)
Acceleration of
payment of invoices (0.1% of
GDP)
Application of the
minimum VAT rate on
building land (<0.1% of
GDP)
Compensating
measures offsetting
the impact of the
increase on the excise duty on petrol
(0.15% of GDP)
Increase in pensions (1% of
GDP);
Increase in allocations for
salaries in the budgetary
sector by 10% (0.3% of
GDP)
Cyprus
Increase of public infrastructure investments
(1.2% of GDP);
Boosting tourism promotion and encouraging domestic tourism (0.13% of
GDP)
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CESifo DICE Report 3/2010
Database
Table 2 (continued)
Public investment, support
for business, infrastructure
and research
Czech
Republic
Infrastructure investment
(0.4% of GDP)
Denmark
Building repair and maintenance (0.1% of GDP);
Social expenditure
Housing, labour market,
education expenditure
Indexation of pensions
(0.2% of GDP)
Other spending
Government
consumption and
wages (–0.6% of
GDP)
Municipal investments
(0.1% of GDP);
Green transport infrastructure (0.1% of GDP)
Advancement of enforcement of the new
Labour law (0.2% of
GDP);
Estonia
Increase in pensions
(0.8% of GDP)
Finland
Support for enterprises’
access to finance (0.2% of
GDP);
Boosting construction of Funding municipal
rental housing (0.05% of mergers (0.05% of
GDP)
GDP)
Boosting infrastructure
investment (0.1% of
GDP)
France
Additional public investment (–0.3% of GDP);
Sectoral aid for housing
and automobile industry
(0.1% of GDP)
Germany
Social measure in favour of
the low income households
(0.1% of GDP)
Investment, incl. infrastructure (0.3% of GDP);
Making work pay measure (0.1% of GDP)
Labour market support
(0.1% of GDP)
Industry support (0.1% of
GDP)
Higher expenditure
on the health-care
sector (0.2% of
GDP)
National Fund for Social
Cohesion (0.2% of GDP)
Greece
Restraining public sector Public wages
employment growth
freezing for 2009
(0.3% of GDP);
(0.2% of GDP);
Cuts in the public sector’s remuneration of
high-level officials
(<0.1% of GDP)
Hungary
Modernization and subsidy
programme for district
heating schemes (0.1% of
GDP)
Capping the 13th monthly
pension payment for pensioners at the level of the
average pension and abolishing it for some groups of
early pensioners (–0.2% of
GDP);
Partly compensated suspension of the 13th monthly
salary in the public sector
and a nominal freeze of
public wage (net impact:
–0.25% of GDP);
Savings in social transfers
(–0.15% of GDP)
CESifo DICE Report 3/2010
Environmental
premium (0.2% of
GDP);
66
10% cut in elastic
public expenditure
items
Cuts in chapteradministered and
other government
programmes (e.g.
transport development and environmental protection;
-0.25% of GDP)
Database
Table 2 (continued)
Public investment, support
for business, infrastructure
and research
Ireland
Reprioritization of public
investment (–1.2% of
GDP)
Social expenditure
Housing, labour market,
education expenditure
Social welfare package
(0.3% of GDP);
Other spending
Reduction in overseas development
aid (–0.1% of
GDP)
Savings in social transfers
(–0.3% of GDP);
“Pension levy” on public
sector wages (–0.4% of
GDP);
Reduction in public service
payroll (–0.2% of GDP);
Postponement of agreed
pay increase (–0.1% of
GDP)
Italy
One-off income support to
households (0.2% of GDP)
Latvia
Increase in social payments
(2.1% of GDP)
Lithuania
Higher social transfers
other than in kind (0.9% of
GDP);
Rationalization of
government resources (–0.3% of
GDP)
Cuts in public sector
wages (-0.7% of GDP)
Reduction of contributions
to pension funds (2nd pillar;
0.48% of GDP)
Luxembourg Increase in government
investment (0.7% of
GDP)
Reduction on
transfers to local
governments
(–0.5% of GDP);
Cuts in current
government
expenditure (–0.9%
of GDP)
Increase by 2% in old-age
and assimilated pensions
(0.2% of GDP);
Encouragement of recourse to partial unemployment (0.4% of GDP)
Malta
Investment projects related to industry (0.1% of
GDP);
Education (0.1% of
GDP)
Higher incentives for investment (0.2% of GDP);
Reduction in other
subsidies (–0.4% of
GDP);
Support for tourism (0.1%
of GDP);
Environmental
measures (0.1% of
GDP);
Investment in educational
institutions (0.3% of
GDP);
Sustainable development at local
level (0.1% of
GDP)
Infrastructure – roads,
maritime facilities (0.2%
of GDP);
Netherlands
Reduction in energy subsidies
(–1% of GDP);
Increase in infrastructure
projects (–0.1% of GDP)
Labour market measures (e.g., part-time
unemployment; –0.1%
of GDP);
Increase in education
expenditures (–0.3% of
GDP)
Poland
Investment (0.3% of
GDP);
Subsidies (–0.2% of GDP)
Investment (0.6% of
GDP)
67
Intermediate consumption (–0.7% of
GDP)
CESifo DICE Report 3/2010
Database
Table 2 (continued)
Public investment, support
for business, infrastructure
and research
Portugal
Special support for activity, exports and SMEs
(0.1% of GDP);
Social expenditure
Housing, labour market,
education expenditure
Other spending
Support to household income (0.2% of GDP)
Support for firms (0.1% of
GDP);
Renewal of school premises (0.2% of GDP);
Investment (and support
to investment) in energy
and telecommunications
infrastructure (0.2% of
GDP)
Romania
Public investment (1% of
GDP)
Slovak
Republic
Subsidy of purchase of new Changes in welfare meascars (0.1% of GDP)
ures (0.5% of GDP)
Slovenia
Spain
Instituting a minimum
“social” pension (0.1% of
GDP)
Cuts in personnel expenditure (–0.9% of
GDP)
Lower expenditure
on goods and services (–1.3% of
GDP)
Support for SMEs and
start-up companies (0.1%
of GDP);
Wage subsidies for
shorter hours worked
(0.6% of GDP);
Increase in specific
transfers in kind
(0.1% of GDP)
Subsidies for investment in
new technologies and
R&D (0.2% of GDP)
Public sector wage bill
(0.2% of GDP)
Central Government Fund
for Local Public Investment (0,72% of GDP);
Fund to improve certain
strategic sectors (0.27%
of GDP)
Sweden
Increased investment in
and maintenance of infrastructure (0.2% of
GDP);
Increased coaching,
activation and training
of unemployed (0.1% of
GDP)
Increased education and
research expenditure
(0.1% of GDP)
United
Kingdom
Front-loading capital
spending (0.2% of GDP);
Social and housing expenditure (0.2% of GDP)
Support for business and
industry (0.2% of GDP)
Source: European Commission (2009, 198–260).
CESifo DICE Report 3/2010
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