This analysis makes use of economic forecasts for 2020 issued by the European Commission in Autumn 2019 and Spring 2020, and of a counterfactual under a no-policy change assumption, to analyse the impact of the COVID-19 crisis on EU households´ income. Additionally, our analysis assesses the cushioning effect of discretionary fiscal policy measures taken by the EU Member States. We find that the COVID-19 pandemic is likely to affect significantly households’ disposable income in the EU, with lower income households being more severely hit. However, our results show that due to policy intervention, the impact of the crisis is expected to be similar to the one experienced during the 2008–2009 financial crisis. In detail, our results indicate that discretionary fiscal policy measures will play a significant cushioning role, reducing the size of the income loss (from −9.3% to −4.3% for the average equivalised disposable income), its regressivity and mitigating the poverty impact of the pandemic. We conclude that policy interventions are therefore instrumental in cushioning against the impact of the crisis on inequality and poverty.

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This paper analyzes the extent to which tax-benefit systems provide an automatic stabilization of income for those who became unemployed at the onset of the Great Recession. The focus of the analysis is on the compensation for earnings lost due to unemployment which is channeled through the welfare systems to this group of people who are clearly vulnerable to the recession's adverse effects. In order to assess the impact of unemployment on household income, counterfactual scenarios are simulated by using EUROMOD, the EU-wide microsimulation model, integrated with information from the EU-LFS data. This paper provides evidence on the differing degrees of relative and absolute resilience of the household incomes of the new unemployed. These arise from the variations in the protection offered by the national tax-benefit systems and from the personal and household circumstances of those most recently at risk of unemployment in the countries considered. JEL Codes: C81, H55, I3A 1 percent reduction in real GDP between the second quarter of 2008 and the same quarter of 2009 is associated with an increase in the unemployment rate of about 0.57 percentage points in Estonia, 1.70 points in Spain, and 1.26 points in Ireland. The same indicator amounts to 0.26 in Belgium and 0.11 in the Netherlands and Italy, while no discernible variation has been reported in the German unemployment rate between the second quarters of 2008 and 2009 despite a real GDP reduction of 6.2 percent. For the U.K., France, and Portugal, the indicator is 0.44, 0.49, and 0.54 percentage points, respectively.