Michael McMahon's picture
Affiliation: 
University of Oxford
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:
None of the above, other, or no opinion
Confidence level:
Very confident
Comment:
While the reality will potentially involve, to different degrees, aspects of all of these, the ideal would be a situation in which the economy can grow its way out of the debt. This will raise the amount of tax and lower spending even if the policies remain unchanged and thus lower the deficit. And by raising the denominator, the debt and deficit ratios will look even more favourable. Of course, engineering growth is hard; especially as the economy may be faced with structural changes to how (or even if) certain sector operate. But it would provide the least painful and hopefully most sustainable way out of the increased debt.

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

Answer:
There is no need to take or announce any budgetary actions to reduce the deficit or the public debt until the end of the pandemic
Confidence level:
Very confident
Comment:
The government is, correctly, in the "whatever-it-takes" phase and so there is no sense in trying to begin a fiscal adjustment now. Until there is some greater certainty about the length of the health crisis and we move to the recovery phase, there is little sense in proposing specific plans which would need to change as uncertainty is realised. What could be usefully proposed sooner, and even consulted upon, is broad set of principles for how the adjustment will take place. Even without specific figures, it could help communicate when plans might be put in place to undertake any fiscal adjustment, what will determine the scale of adjustment needed by explaining the objectives/targets of the government, and how the burden of adjustment might be spread in terms of instruments (tax increases versus spending adjustments) and on whom (intergenerationally? sectorally? across the income distribution?).

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:
Confident
Comment:
I think the difficulty is that the current crisis requires quick action and there is a need to disperse funds quickly. Most of the other options, while they may be desirable economically are likely to take a long time. As such all countries need to proceed on the assumption that they will fund their relief effort themselves and undertake the necessary supports relying on the ESM and PEPP to reduce pressure on funding costs. Between the other options, it would clearly be useful to have additional support from the EU level so any that could be implemented quickly would be desirable economically (and potentially politically). Although some countries may explore monetary financing, and it may even be somewhat desirable in a one-off, independently-entered-into sense, I see the barriers to such financing as too large in the euro area.

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:
10-20% of GDP
Confidence level:
Confident

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:
This is a whatever it takes moment and the first use of fiscal funds has to be on supporting the health sector. The recession is desirable from a public health perspective. But then the options listed above are needed for the economic support during the epidemic crisis and subsequent support for the recovery. It will be very costly but it is necessary.

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