Since regaining its independence, the Estonian government has followed policies of fiscal consolidation when responding to economic crises. Its response to the COVID-19-crisis has been quite different – it has authorized additional expenditures, cut taxes and incurred considerable debt. This paper gives an overview of the budgetary measures adopted and explores the question: why was it different this time?
The authors draw upon policy documents to zoom in on the main political, institutional and economic factors that help to explain Estonia's departure from extreme fiscal conservatism in the midst of the global pandemic.
The authors found the key political factors to be the party composition of the government, policy diffusion and policy learning. Key economic factors included Estonia's very low level of debt prior to the crisis and credit market advantages gained from Eurozone membership.
Estonia presents an interesting case because in all previous crises it responded with fiscal consolidation, whereas it is now responding with extensive fiscal stimulus.
