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Forgive me if this seems like a dumb question but I'm serious. Could someone point me to an answer?

A US economist friend of mine told me "no, they won't raise taxes because they want to stimulate the economy. If they raise taxes, the economy won't be stimulated and we'll get deflation which nobody wants.

But I just read in the UK newspaper that they're going to raise taxes to pay for this ~£300B deficit.

If nobody truly knows (just like all questions related to the plague of 2019), that's also an acceptable answer.

Really don't have a great success rate posting questions on stack exchange so if I have violated the rules somehow please be kind and I am happy to edit/rewrite my question.

Derek Fulton
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1 Answers1

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Governments often have a long term debt, and that can be at very low rates, especially for things like war bonds which are more or less giving money to the government. Pension funds often hold money in gilts as a rock solid investment.

So, government will inevitably raise taxes but not necessarily any time soon. If you could borrow at 0.5% a year over 20 years, you wouldn't be in any hurry to pay it back either. HMG has only relatively recently paid off debt incurred in the South Sea Bubble and the Napoleonic War. https://www.gov.uk/government/news/repayment-of-26-billion-historical-debt-to-be-completed-by-government

As long as the markets don't lose confidence in the government's ability to service the debt, it'll often be better to keep it. Debt itself is never the problem, it's the repayments that count.

richardb
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