Wendy Carlin's picture
Affiliation: 
University College London
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:
Confident
Comment:
No single measure will be appropriate and it is too early to have a good understanding of the macroeconomic conditions in the post-COVID-19 years (especially what the longer term growth rate and real interest rate are likely to be). Policy instruments will also be directed toward other targets such as climate objectives so it does not make much sense to pick one out for 'debt reduction'.

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

Answer:
Budgetary policy should not be used to address public deficits and debts in the foreseeable future
Confidence level:
Confident
Comment:
Announcements about the size of the forecast increase in government debt and how worrying it is should be replaced by clear messaging about the shock-absorber role of public debt as the government plays its role as insurer or last resort. The focus should be on minimizing the damage to education, R&D, investment, start-ups etc. and on supporting incomes until econoimc activity can resume - not on the public debt. It is lack of attention to the former through an unbalanced concern with publc debt that will produce an increased burden on younger people.

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:
Expanded EU budget (with possible borrowing at the EU level)
Confidence level:
Not confident

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:
Confident
Comment:
The worst hit economies have provided too little (national) discretionary fiscal stimulus. Italy is in the worst position (see the IMF Fiscal Monitor on the balance between very small fiscal stimulus and much larger loans and guarantees). This combination is much too little to fill the output gap. The danger if substantial EU funding is not provided is of long-term and very costly scarring effects; and in the shorter term, of a possible sovereign debt crisis threatening the future of the Eurozone.

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 situation for which the use of the public debt as a shock absorber is appropriate, and the interest burden will be limited by the very low interest rate on public debt. If stringent measures to control the spread of the virus are implemented (a big 'if' as of now), then combined with a coherent package of measures to 'hold' economic relationships in place, the recession will be V-shaped and longer term economic damage will be limited.

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