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A Stronger Recovery Through Better Accounting

Given that the COVID-19 crisis demands unprecedented levels of stimulus spending, policymakers should use the occasion to adopt a more flexible form of public-sector accounting. Insofar as public-sector assets like infrastructure add to the state's "net worth," they should be put to use generating new revenue flows.

NEW YORK – One effect of the COVID-19 lockdowns this year is that many young adults have returned home temporarily to stay with their parents, subletting their apartments to others in need. For those who have lost their jobs, the rent paid by these tenants has doubtless provided a welcome and necessary safety net. Thanks to the modern gig economy, victims of the downturn can operate like corporations, “sweating” their balance sheets to maximize the income from their existing assets.

Given the sheer scale of spending that this crisis demands, public policymakers, too, should consider a more creative approach. The pandemic presents a unique opportunity for governments to consolidate their finances by looking not just at spending and revenues, but also at assets and liabilities. By taking an integrated approach, as would be done in a corporate restructuring, governments can steer their way toward a stronger recovery without the need for excessive austerity and the social hardship that comes with it.

Insights from the field of corporate financial management not only can improve governments’ understanding of the trade-offs between spending cuts and tax increases. They also show that overall government indebtedness can be measured as a proportion of the physical assets a government possesses. Viewed from this perspective, a government need not rely only on projected annual GDP when generating the cash needed to service its debt. Instead of treating capital expenditures as an immediate expense, it can start to leverage its vast public wealth through a proper accounting of its long-term investments in infrastructure.

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