Social capital, trust in government, and the effectiveness of fiscal policy responses to COVID- 19
Date
2023-03
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Abstract
This study analyzes the effectiveness of demand-side fiscal policy responses in reducing COVID-19 cases, and whether social capital and trust in government have an
intervening effect on this relationship. Using random effects panel data regression, we analyze the respective impacts of income support and fiscal stimulus on daily COVID-
19 cases, as well as their interaction with social capital and trust in government in a sample of 31 countries. This study covers the first year of the pandemic, from May 13,
2020 to December 31, 2020. We find that both income support and fiscal stimulus have significant negative effects on the spread of COVID-19, with income support having a
much larger impact. Contrary to our hypothesis, social capital weakened the negative effect of income support on COVID-19 cases, which we attribute to a possible
substitution effect. The results also showed that higher levels of trust in government strengthen the negative effect of large amounts of income support.
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Keywords
COVID-19, social capital, trust in government, fiscal policy, income support, fiscal stimulus