Nicholas Oulton's picture
Affiliation: 
London School of Economics
Credentials: 
Senior Visiting Research Fellow

Voting history

COVID-19 and UK Public Finances

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

Answer:
Perpetuities
Confidence level:
Confident
Comment:
The support measures the government has introduced aim to support consumption. Financing by tax increases or expenditure cuts would be self-contradictory. Therefore they should be financed initially by borrowing. The cheapest way to borrow seems to be via consols. At some future date consideration should be given to redeeming the consols via if necessary tax increases.

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

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:
Debt restructuring or write-off
Confidence level:
Confident
Comment:
Coronabonds will never be accepted by Germany or the Netherlands. Monetary financing by the ECB is illegal under the treaties and probably under the German constitution too. Other options seem infeasible. That leaves do nothing (which I don't support) or debt restructuring (default).

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
Comment:
10-20% of GDP looks a reasonable total to plan for over the first year. So how much of this should be paid for at EU level? In the case of an EU member not in the Eurozone like Denmark or Poland, they could probably afford this by themselves. But they would presumably expect to share in any EU-wide scheme. In the case of Eurozone members like Spain, Italy, or Greece, tthey clearly can't afford this level of support from their own resources since they are heavily indebted and have given up their monetary independence. So they will need a bailout of some sort.

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:
120% of GDP (e.g. if fiscal support were doubled)
Confidence level:
Confident
Comment:
Assuming the virus dies out during this year the effect on the debt level need not be that great. Suppose GDP falls by say 7% after 2 quarters (a bigger hit than in 2008-2009). Then a rise in public debt from 80% to 120% of GDP is a generous allowance. Under this scenario a fairly rapid recovery after a V-shaped recession is possible. However if the virus returns, possibly in more virulent form as did Spanish flu, then I might have to rethink this.

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