Servaas Storm: Austerity raises Covid deaths

An often-cited slogan of the Covid pandemic, ‘we are all in this together’, does not seem to fit well, if one looks at cross-country differences in casualties the pandemic has claimed so far. Why do some countries do better than others? Comparing different macroeconomic variables and policy measures in a panel of 22 OECD countries in a Blog article for Intereconomics*, Dutch economist Servaas Storm sheds the light on three factors for differential impact of Covid-19.

First, he finds that additional public spending alone does not suffice as an explanation, but that public health competence has to be considered as equally important. Second, structural socio-economic differences, namely income inequality, seem to drive up mortality, as the poor carry a greater burden of chronic diseases and have less access to health care. Third, fiscal constraints may serve as an explanation for higher mortality in countries such as France, Spain, and Italy, where per-capita spending was relatively low, because the fiscal capacity of government to raise spending to cushion the economic impact of the health emergency was compromised.

Consequently, Storm draws the conclusion that the pandemic has uncovered some of our societies’ pre-existing structural weaknesses.

According to Storm, (macro)economists have put too much emphasis on austerity, leading to underinvestment in crucial infrastructures such as health. “Government spending on health and social protection is not a ‘cost’ but is critical to maintain social stability and to strengthen societal and individual resilience to deadly pathogens”.

*There is also a longer version of this article published as a working paper, which can be found here.