Jagjit Chadha's picture
Affiliation: 
National Institute of Economic and Social Research
Credentials: 
Professor of economics

Voting history

COVID-19 and UK Public Finances

Question 2: What is the best way to (eventually) reduce public deficits and debt?

Answer:
Tax increases
Confidence level:
Extremely confident
Comment:
We have a sustained increase in the demand for the provision of public goods. If they take up a larger share of income, then I am afraid there is little alternative to increasing taxes (by which I mean revenues relative to income) by a similar amount. Given low borrowing rates though there is no immediate need, by which I mean this year or next. Once we can be sure that lockdowns are going to re-emerge (i.e. this "war" is over) we can think about how to pay for it.

Question 1: How urgently should the UK government address the rise in public debt?

Answer:
HM Treasury should present a long-term plan to reduce the deficit as soon as possible, but not introduce measures to do so in the upcoming budget
Confidence level:
Very confident
Comment:
Fiscal policy events have become quixotic. The framework needs serious re-working. We are planing a review of the "rules" this Autumn and I would also encourage a careful examination of revenues. By paying more careful attention to the framework, targets and instruments as well as committing to a clear timetable for fiscal events, there is a lot of time to consider the appropriate degree of tax smoothing in response to this period of heightened expenditures.

The Eurozone COVID-19 Crisis: EU Policy Options

Question 2: What is the best mechanism to pay for economic support provided by and to EU member states to combat the COVID-19 crisis?

Answer:
Member states themselves (no additional EU support)
Confidence level:
Very confident
Comment:
Member states need to be able to plot an appropriate path for their public debt and to target domestic expenditure to limit the size of the impact of lockdowns on the economy. There are though likely to be large positive multipliers from expansionary policies, given the nature of the lockdown, from those countries that do not already have worryingly high levels of public debt. There is not strictly speaking a need for a centralised response providing surplus countries try to inject more demand into the system.

Question 1: What is the total size of funding that you would advocate at the EU level in support of its members to weather the COVID-19 crisis this year?

 

 

Answer:
5-10% of GDP
Confidence level:
Very confident
Comment:
Growth in the EU seems like to contract by some 6-7% in 2020. The impact of lockdowns in the Euro Area is amplified as there is so much intra-EU trade. We estimate that the domestic shock from a lockdown might be nearly doubled once we account for linkages beyond national boundaries. A larger co-ordinated response is therefore well motivated. We cannot afford to let economies spiral onto a downward path.

Covid-19: Economic Policy Response

Question 3: Which would be the maximal public debt you would be willing to tolerate if used effectively (as in your answers to 1 and 2 above) to support an economic recovery?

Answer:
>140% of GDP
Confidence level:
Confident
Comment:
The UK relies heavily on overseas financing of the current account deficit so monetary-fiscal operations must be within a stable framework. But at such low global real interest rates there is a considerable room for offsetting this crisis and ensuring that it does not scar the economy for a generation. Wartime debt levels have risen to these levels and were managed with a long periods of post-war adjustment.

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