How welfare and credit regimes shape economic policies during times of crisis: the case of Covid-19

How much economic support governments offered to households during the Covid-19 pandemic differed considerably across rich democracies. What explains this variation? We argue that institutional structures of welfare and credit regimes shape households’ abilities to address income shortfalls and, as a result, governments’ policy repertoire during crises. In countries with permissive credit regimes, economic support policies were more comprehensive when social policies were limited. Governments not only provided income support but also debt relief to shield households from default risks due to high pre-crisis debt leverage. Yet those countries ceased income support sooner as credit resumed its substitutive role vis-à-vis the welfare state. We provide evidence for our argument by examining pandemic policies from five OECD countries that vary in their social policies, credit access and household indebtedness. Our findings suggest that the privatization of risks imposes financial burdens on households that constrain governments’ policy responses in times of crisis.