Final answer:
Fiscal policy during a recession is limited by time lags and political reluctances to implement tax increases or spending cuts. Expansionary fiscal policies have been used in past recessions to boost demand and employment. Fiscal policy during the COVID-19 recession differed in its massive scale, speedy delivery, and broad targeting compared to normal recessions.
Step-by-step explanation:
During a recession, fiscal policy faces several limitations. Firstly, there is the issue of time lags: it can take several months or more than a year to implement expansionary fiscal policies effectively. Political hesitance also plays a role; politicians tend to avoid proposing tax hikes or spending reductions, even when economic indicators suggest their necessity. However, during recessionary periods, expansionary fiscal policies, such as tax cuts and increases in government spending, are commonly employed to stimulate the economy. In previous recessions, governments have lowered taxes and increased spending to boost employment and consumer demand.
The COVID-19 recession introduced unique challenges that required different fiscal policy measures. For one, the pandemic caused both supply and demand shocks simultaneously, calling for extensive government intervention. Additionally, COVID-19's fiscal response was far more digitized and targeted, with support such as direct payments to individuals and specific aid to impacted industries like tourism and hospitality.
A notable difference during the COVID-19 recession was the scale and speed of fiscal interventions. Unprecedented levels of government spending were mobilized to support healthcare, provide stimulus checks, and subsidize wages, differing significantly from the more moderate and slower fiscal responses seen in traditional recessions. Moreover, the indiscriminate impact of the pandemic necessitated a broader and more inclusive fiscal response, contrasting with more focused interventions during typical recessions.