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COVID-19 has revived the social contract in advanced economies (Madgavkar et al.)

COVID-19 has revived the social contract in advanced economies— for now. What will stick once the crisis abates? by Anu Madgavkar, Tilman Tacke, Sven Smit, and James Manyika published by McKinsey Global Institute (12/2020)

“Massive government spending has sought to shield individuals from the economic consequences of the pandemic, reversing a long-term trend of institutional pullback in the social contract.

Since the onset of the COVID-19 pandemic, G-20 economies have announced fiscal packages already exceeding $10 trillion, which in real terms is about three times the support provided during the 2008 financial crisis and 30 times the size of the Marshall Plan, which helped rebuild Europe after the Second World War. These large-scale policy interventions have significantly buffered risks faced by individuals, reversing a two-decade long trend in the social contract, the arrangements and expectations, often implicit, that govern how economic risks and gains are shared between individuals and institutions.

In the 22 advanced countries we studied, governments have increased fiscal spending as a percentage of GDP by an average of 20 percent in 2020 from 2019 and by as much as 39 percent in Canada (Exhibit 1). Countries such as the United States and the United Kingdom that were typically lower spenders on the social contract before the pandemic have raised their expenditure by significantly more than economies such as Denmark, which previously had ranked among the higher spenders. In 2020 alone, governments in the European Union are expected to spend an additional $2,343 per person compared to 2019, while in the United States, spending will be $6,572 higher…”

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