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Are Standard Macro and Credit Policies Enough to Deal with the Economic Fallout from a Global Pandemic? A Proposal for a Negative SME Tax

Author(s): Thomas Drechsel, Şebnem Kalemli-Özcan

Date published: Mar 2020

SUERF Policy Note, Issue No 142
by Thomas Drechsel and Şebnem Kalemli-Özcan, University of Maryland


JEL-codes: H0, H25, H32, I1, E3.
Keywords: Covid-19, negative business tax, macroeconomic stimulus.

Both policy makers and the public are only beginning to grasp the full scope of the Covid-19 outbreak. While it is unavoidable that economic activity is reduced to avoid the spread of the virus, there is a strong argument for policy to support the economy during this unprecedented downturn. This note provides a specific policy proposal to support small and medium-sized enterprises (SME). The sudden collapse in demand puts these businesses at the heart of the crisis, with massive liquidity shortfalls that could send millions of businesses into bankruptcy. Our proposal argues for direct cash transfers to businesses, implemented via a negative tax. We point out some existing policies targeted towards SMEs, such as emergency loans, may fall short in terms of timely availability. The note also provides quantitative calculations for a payroll-based cash transfer in the United States.
 
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SUERF Policy Note, Issue No 142SUERF Policy Note, Issue No 142

Are Standard Macro and Credit Policies Enough to Deal with the Economic Fallout from a Global Pandemic? A Proposal for a Negative SME TaxWeb version: Are Standard Macro and Credit Policies Enough to Deal with the Economic Fallout from a Global Pandemic? A Proposal for a Negative SME Tax

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