Since the global financial crisis (GFC), fiscal support has inflated public debt in the advanced economies (AEs), and during the post-pandemic recovery, provision for households pushed up inflation, according to Oxford Economics. Looking ahead, the mis-calibration of fiscal support could slow the desired falloff in inflation and delay policy pivots by central banks.
AE fiscal policy today is almost diametrically opposed to pre-pandemic doctrines. Not only is "belt tightening" rarely mentioned, but the aim of fiscal spending is also changed. Nowadays budget deficits are aimed at supporting households rather than bailing out industries. Truth be told, industries also enjoyed fiscal support in the post-pandemic recovery, but the change toward helping households has been crucial.
As a consequence, government debt levels in quite a few AEs has exceeded target rates embodied in earlier fiscal rules (from 60 percent) of GDP that EU’s Maastricht criteria use to the infamous