ABSTRACT

How Far and How Fast? Public Debt After the Pandemic   [open pdf - 0B]

From the Introduction: "Although it is clear that debt levels are going to jump significantly, how much they will increase and whether this is sustainable remains uncertain. This will then determine the extent to which fiscal consolidation is necessary after the economy has recovered. In this briefing, we examine what would happen to the public finances under various stylised scenarios and discuss what policy response would be appropriate in each case. We begin by setting out different scenarios for how the economy might evolve over the next few years depending on how long social-distancing requirements have to be in place, and we consider the likely implications of these for levels of deficits, government debt and debt servicing costs. We then consider how these are affected by varying assumptions about how much of the damage to the economy from the pandemic is permanent and on the interest rate the government has to pay on its debt, before turning our attention to how policy should respond. We examine the implications of the government's fiscal rules before outlining how a more flexible framework could allow a more optimal response. Finally, we briefly consider how fiscal tightening should be enacted."

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Date:
2020-06
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Tony Blair Institute for Global Change
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Tony Blair Institute for Global Change: https://institute.global/
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application/pdf
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