The financial and economic crisis had a severe impact on public finances in Europe. The immediate short-term fiscal policy responses served to cushion some of the adverse effects of the crisis. But the initial expansionary stance of fiscal policy was abandoned and fiscal consolidation measures were implemented in many European Union countries when the economic crisis turned into a sovereign debt crisis.
The objective of this research project is to provide an overview of how fiscal responses to the crisis varied across countries and to discuss how fiscal policy reactions affected labor supply incentives, the income distribution, and stabilization properties of national tax and transfer systems in Europe. The empirical analysis will be conducted with EUROMOD, a tax-benefit microsimulation model for the European Union which allows for a micro-founded analysis of national policies.