COVID-19 Pandemic and Intervention Through Fiscal Policy Instruments
The SARS-CoV2 (COVID-19) outbreak has marked the twenty-first century, defined as the “super smart society” (Baykal 2018), which aims at the high level integration of the cyberspace and the physical life space, where the concepts of Industry 4.0 and Society 5.0 are discussed.
COVID-19, which was seen in the local seafood market in Wuhan, China in December 2019, is thought to have derived from the bats (even a rhinolophus) but, as it was not sold in the market in question, it is thought to have passed from pangolin (scaly anteater) as an intermediate host to humans (TUBA 2020; Ak 2020). The epidemic that influenced the whole world infected 10.402.637 people and caused the death of 507.518 people as of 30 June 2020 (Worldometer 2020). The fatality rate of approximately 5% in a period as short as 6 months from the first death of January is a signal that it will have a more severe effect than other outbreaks if individual, national, and international measures are disrupted.
During the epidemic periods before the Keynesian economic theory that emerged in the 1930s, the role of the state in the economy was limited. However, with the Keynesian theory, with the state interventionism becoming effective in the economy, the process of struggling through public fiscal policies and instruments was initiated in the next epidemic periods. In the face of the COVID-19 outbreak, which left its mark on 2020, countries quickly implemented government support packages as large as those not seen apart from the long war periods. This suggests that the epidemic will cause a long-term economic crisis, when viewed from a broad perspective, and will lead to increased role and scope of state interventionism even in developed liberal economies (Pamuk 2020).
Stating that there are no institutions to meet this expectation in the USA and European countries, which are expected to assume such an enormous role, Acemoglu (2020) points out the need for the formation of strong non-governmental organizations and new democratic institutions, which are powerful and can balance the power of the state, from the examples of Singapore, Taiwan, Japan, and South Korea (Acemoglu 2020).
The pandemic has stimulated the cooperation platforms both nationally and globally, shaping economic, financial, and social policies with legal institutional arrangements in cooperation. Tax policy should be coordinated with other policy levers (health, trade, labor market policy and social, financial, and monetary policies). For example, in some countries, social spending may be more efficient in providing financial support to households; tax policies can support the cash flow to the private sector with the specified measures; the capacity of companies to manage corporate debt burdens can be increased by facilitating their credit access. Providing liquidity support to businesses, especially through tax delays, has been a priority policy instrument in most countries. Tax delays provide cash flow support to businesses, especially when applied to taxes to be paid during the fiscal year (such as Value Added Tax, taxes on wage income, and social security contributions) (Table 2.4). Similarly, fiscal
Table 2.4 Tax regulations in combating COVID-19: country examples
| Countries | Income tax and social security withholdings | Corporata tax | Value added tax |
| China | - Healthcare personnel bonuses are excluded from tax - Social security premium payments have been postponed regionally | - Donations to anti-epidemic institutions have been reduced in determining the tax base | - Discounts and exceptions have been introduced for specified products and services |
| Germany | - The period for submitting annual income tax returns to directly affected sectors has been postponed | - The period for submitting annual corporate tax returns to directly affected sectors has been postponed | - The deadline for submitting value added tax (VAT) declaration to the directly affected sectors has been postponed |
| France | - Income payments of self-employed persons have been delayed for a while - Social security premium payments have been postponed for a while | - The period for submitting annual corporate tax returns to directly affected sectors has been postponed | - VAT refund processes have been accelerated |
| Turkey | - The annual income tax declaration submission period has been postponed in all sectors - In the directly affected sectors, the period of withholding tax return on wages has been postponed | - VAT declaration has been postponed for a short time, valid for all sectors - VAT declaration has been delayed for a long time in directly affected sectors | |
| USA | In order to be valid for tax bases that do not exceed a certain limit, the period of submitting an income tax declaration has been postponed - The period of submitting a withholding return regarding wage income has been postponed, to be valid for tax bases not exceeding a certain limit | - The period of submitting a corporate tax declaration has been postponed to be valid for tax bases not exceeding a certain limit | - Practices that will vary according to the state in the sales tax have been made |
Source PWC (2020a, b)
policy should be coordinated with monetary policy. On the other hand, if there is a risk that the epidemic crisis may negatively affect public debt sustainability, the alternative of monetarization of debt (emission) may be considered (OECD 2020).
The cost of the support packages announced by the countries will increase public spending (establishment of pandemic hospitals, personnel training, etc.) with the aim of alleviating health and economic losses, and the loss of tax revenues due to the epidemic crisis will cause worsening of public debt levels and budget balances, resulting in significant increases in public borrowing. Such that, the ratio of the average public debt level to GDP in OECD countries was 73% in 2007 due to the 2008 global financial crisis. This ratio increased to 101% in 2011. The economic impact of the COVID-19 outbreak is expected to be more severe than the global financial crisis in the framework of the 2020 financial balances forecast (OECD 2020).
Especially considering the financial position of low-income countries, it is highly likely that they will face difficulties in terms of credibility and debt costs in international debt markets (OECD 2020). However, these countries urgently need grants and zero-interest loans to finance their health expenditures. Past epidemic experiences such as SARS, Ebola, and MERS show how important the providing privileged funding rate is in controlling the spread of the epidemic (Gaspar and Mauro 2020).
2.4