The world is still suffering from the consequences of the pandemic. The problem of bursting deficits and growing public debt is one of the problems that existed and has worsened further as economies are exposed to the pandemic, resulting in closures and deficits, and Governments are pumping liquidity to avoid devastating downturns. And it is no secret that the source of this liquidity was the excessive purchases of government bonds by central banks, With the beginning of the recovery and the opening of economies, production, trade and investment conditions are expected to improve, but the astronomical level of public debt remains a major concern for all. and possible problems that require extraordinary action that may negatively affect productive investment.
In these circumstances, can the same criteria of public debt continue to apply? The economic situation at the time of the outbreak of the pandemic was characterized by decline and deterioration, not only because of a war or a decline in demand, but also because of the epidemiological situation that prompted governments to close, and so there was a halt in the flow of raw materials, goods and funds not only between countries but also within the economy.
This question was previously asked on September 1, 2019, before the outbreak of the epidemic and before the outbreak of war in Eastern Europe.
https://www.researchgate.net/post/What_are_the_standard_limits_of_public_debt
Question is what is the government doing with the money? If it is spending on investments in infrastructure or education, it might be quite good.
Actually, Professor, what the government does with this money is taken into account. The question I asked after comparing different positions regarding the occurrence of a government deficit or the government’s insistence on borrowing to finance the deficit. Before the Corona pandemic, there were limits to government deficit and debt through criteria and indicators, but the pandemic made governments act with unusual boldness. These governments have done a lot of things like health care, helping people in lockdown, wiping out school debt and a lot of other things without raising taxes or having a protracted battle over the usual question of how to pay for all that stuff.
Today, the situation needs a serious discussion about the limits that we can consider safe for the deficit and government debt, taking into account the impossibility of reducing the deficit and debt to pre-pandemic levels.
Perhaps your question is very much context driven. Pandemic is an unusual situation, the government in the Netherlands had several types of income and capital transfers introduced to prevent implosion of the economy. State debt in % of GDP was not much effected. See: www.cpb.nl
Yes, there are special cases, but the issue of public deficit and debt remains a sensitive issue, given that it is a field in which narrow political interests struggle with the requirements of economic stability. Therefore, the limits of deficit and debt must be clarified to measure the success of applied policies.
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