European Central Bank’s Study Shows How Fiscal Announcements Shape Public Perceptions of Inflation, Jobs, and Economic Outlook
SDG 8: Decent Work & Economic Growth | SDG 16: Peace, Justice & Strong Institutions
Institutions: Ministry of Finance | NITI Aayog | Reserve Bank of India
The European Central Bank’s Working Paper No. 3139 (October 2025) investigates how fiscal policy announcements, such as tax cuts, subsidies, or spending packages, affect how households perceive inflation, unemployment, and overall economic conditions.
Using high-frequency data from the ECB’s Consumer Expectations Survey (CES) across major euro-area economies during 2021–2022, the authors employ an event-study design that matches the exact dates of fiscal announcements with changes in household expectations. This allows them to isolate the announcement effect: the shift in sentiment caused purely by hearing new fiscal information, before the measures are implemented.
Key findings:
Fiscal announcements act as information shocks. Households treat new fiscal measures as signals about the economy’s health and government intent.
Perceived inflation rises immediately after price-related measures (energy subsidies, VAT cuts), even before real effects occur.
Short-term inflation expectations increase modestly but long-term expectations remain anchored, indicating continued trust in central banks.
Expected unemployment declines, showing that fiscal announcements boost confidence in job prospects.
Reactions are stronger among lower-income and less-educated households, who are more sensitive to economic news.
Media attention amplifies effects, confirming that expectation formation depends heavily on visibility and timing.
The study underscores that fiscal policy and communication are inseparable: the way a budget, tax change, or subsidy is announced can shape household expectations and economic behaviour. For India, this insight matters for the Ministry of Finance, RBI, and NITI Aayog, which regularly coordinate on inflation management, growth strategy, and fiscal transparency. Clear, credible, and well-timed communication can anchor expectations and reinforce confidence, while poorly framed announcements risk fuelling inflation sentiment or uncertainty.
Follow the full paper here: ECB Working Paper No. 3139 (October 2025)