Impact of Fiscal Policies on Unemployment in Economic Shock Conditions: Panel Data Analysis

This paper examines the impact of fiscal policy responses on unemployment across EU countries from 2019 to 2024, a period marked by the COVID-19 pandemic as a shock event. A detailed monthly panel data set is used in this study, employing a fixed-effects estimation model with government spending, revenue, and debt as core variables, along with the COVID-19 dummy as a control variable. The findings reveal a strong association between government spending and revenue in reducing unemployment, aligned with countercyclical fiscal policy support. Conversely, increasing government debt is strongly linked to higher unemployment, indicating a risk of excessive borrowing that could hinder future labor market recovery. Moreover, uncertain external economic conditions, such as the COVID-19 pandemic, have further intensified labor market distortions. Finally, the results highlight that fiscal policies can effectively mitigate unemployment in the short term; however, excessive debt may pose challenges to long-term fiscal sustainability. This study underscores the importance of well-structured and timely coordinated fiscal policy frameworks that promote employment stabilization, while ensuring long-term debt sustainability.