During the coronavirus pandemic, most governments have taken up additional public debt. As governments faced a pressing demand to increase public spending within very short periods, the only available source of funding was borrowing. One of the core questions with regard to the economic policies in post-coronavirus capitalism is how to deal with this debt level. Shall we bring the level of public debt – usually calculated in relation to gross domestic product (GDP) – quickly back to pre-corona levels, shall it remain on the increased level or shall we even increase it, in order to fund post-crisis restructuring?

Fiscal policies in different growth models

The discussion on growth models in Comparative Political Economy informs us why governments have different propensities to rely on debtbased funding. This discussion goes against claims that there is only one generally desirable level of public debt – an issue that has been a focus of contention among economists and politicians for decades. Conservative economists call for an absolute ceiling of public debt (for example, less than something between 60 per cent or 90 per cent of annual GDP), in order to avoid a decrease of economic growth (Reinhart and Rogoff, 2010). They further argue that without such a ceiling economies would be instable (for example, with regard to international financial flows), governments would be under the pressure of interest groups to spend in their favour and later generations would need to pay for high public debt today. Left economists, in contrast, argue that there should be no limit to public debt, as long as countries have their own central bank and are not at the bottom of the international currency hierarchy (see Chapter 9). They do not find any evidence that rates of economic growth slows down if debt transgressed 90 per cent of GDP (Herndon et al, 2014). In their perspective, fiscal policies are at the centrepiece of the democratic process, play an important role for safeguarding low unemployment and governments need not worry about intergenerational fairness, as long as public debt is used for productive purposes (investment).