Michael McMahon's picture
University of Oxford
Professor of Economics

Voting history

Responsible long-term fiscal policy (pilot survey)

First question:

To help ensure that advanced country governments have sufficient flexibility to respond to future crises, it is important that finance ministries aim for a ratio of public debt to GDP that is substantially less than 60% in normal times.

Confidence level:
Very confident
I do not agree that 60% or some other lower value is somehow a magic number that, if adhered to, will provide the scope for a fiscal response in the event of another crisis or even a milder recession. The application of one-size-fits-all optimal level of debt does not seem like good advice to me. We know, in an accounting sense, that debt dynamics (in terms of debt as a percentage of GDP) are affected by nominal GDP growth which differs substantially across countries. Countries face very different future claims from health and pension spending, and moreover governments in different countries have different levels of assets. It may be that certain countries need to reduce debt to levels substantially below 60%, but also there are some countries who could, and in fact should, allow debt to be higher than 60% in order to facilitate investment in the near term.