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What can be done during the period of COVID-19 to ensure high income among the population by the government?
Key words: Employment, wage rate, education, social welfare.
In 2020 COVID-19 affected almost all countries and more than 50 million people around the world. It has governments operating in a context of radical uncertainty, and faced with difficult trade-offs given the health, economic and social challenges it raises. By spring 2020, more than half of the world’s population had experienced a lockdown with strong containment measures. Beyond the health and human tragedy of the coronavirus, it is now widely recognised that the pandemic triggered the most serious economic crisis since World War II. Many economies will not recover their 2019 output levels until 2022 at the earliest (OECD, 2020[1]). A rebound of the epidemic in autumn 2020 is increasing the uncertainty. The nature of the crisis is unprecedented: beyond the short-term repeated health and economic shocks, the long-term effects on human capital, productivity and behaviour may be long-lasting. The COVID crisis has massively accelerated some pre-existing trends, in particular digitalisation. It has shaken the world, setting in motion waves of change with a wide range of possible trajectories (OECD, 2020[2]).
This paper highlights the strong territorial dimension of the COVID-19 crisis. Subnational governments – regions and municipalities – are at the frontline of the crisis management and recovery, and confronted by COVID-19’s asymmetric health, economic, social and fiscal impact – within countries but also among regions and local areas. For example, the health of populations in some regions is more affected than in others. Large urban areas have been hard hit, but within them deprived areas are more strongly affected than less deprived ones. Over the past few months, the health impact has spread towards less populated regions in some countries. In the United States for instance, the highest increase in the number of deaths occurring in October were in the rural counties not adjacent to a metropolitan areas. The various risks vary greatly depending on where one lives. This regionally differentiated impact calls for a territorial approach to policy responses on the health, economic, social, fiscal fronts, and for very strong inter-governmental coordination.
Many governments at all levels have reacted quickly, applying a place-based approach to policy responses, and implementing national and subnational measures for in response to the COVID-19 crisis:
On the health front, many countries are adopting differentiated territorial approaches, for example on policies surrounding masks or lockdowns.
On the socio-economic front, governments are providing massive fiscal support to protect firms, households and vulnerable populations. They have spent more than USD 12 trillion globally since March 2020. Many countries, and the EU, have reallocated public funding to crisis priorities, supporting health care, SMEs, vulnerable populations and regions particularly hit by the crisis. In addition, more two thirds of OECD countries have introduced measures to support subnational finance – on the spending and revenue side – and have relaxed fiscal rules.
Many governments announced large investment recovery packages – already much larger than those adopted in 2008 – focusing on public investment. These investment recovery packages prioritise three areas: strengthening health systems; (ii) digitalisation; (iii) accelerating the transition to a carbon neutral economy.
This paper provides good practice examples on policy responses to help mitigate the impact of the crisis on regions and municipalities in all OECD countries, and beyond. Below are ten early takeaways on managing COVID-19’s territorial impact, its implications for multi-level governance, subnational finance and public investment, as well as points for policy-makers to consider as they build more resilient regions.
Introduce, activate or reorient existing multi-level coordination bodies that bring together national and subnational government representatives to minimise the risk of a fragmented crisis response.
Support cooperation across municipalities and regions to help minimise disjointed responses and competition for resources. Promote inter-regional or inter-municipal collaboration in procurement especially in emergency situations. Promote the use of e-government tools and digital innovation to simplify, harmonise and accelerate procurement practices at subnational level
Cross-border cooperation should be actively pursued and supported at all levels of government, in order to promote a coherent response recovery approach across a broad territory (e.g. border closure and reopening, containment measures, exit strategies, migrant workers).
Consider adopting a “place based” or territorially sensitive approach for measures to fight the pandemic
Strengthen national and subnational-level support to vulnerable groups to limit further deterioration in their circumstances and to strengthen inclusiveness, including by simplifying and facilitating access to support programmes, ensuring well-targeted services, introducing adequate and/or innovative fiscal support schemes, and identifying the needs for revising fiscal equalisation policies.
Foster continuous dialogue between national and subnational governments regarding COVID-19’s fiscal impact on subnational budgets using shared evidence and data and taking into account the differentiated impact of the crisis. Help subnational governments reduce the gap between decreasing revenues and increasing expenditures during the COVID-19 crisis to avoid underfunded and unfunded mandates and possible sharp cuts in subnational spending. Special grant schemes could help close these gaps.
Explore and introduce other temporary or permanent, fiscal tools and measures, including tax arrangements, easier access to external financing (debt), and more flexible, modern and innovative financial management tools. Focus on reviewing subnational financial management and strengthening expenditure and revenue effectiveness, as a means to contribute to restoring fiscal stability over the medium and long terms.
Integrate a territorial dimension in national investment recovery strategies and involve subnational governments in their implementation early on, and not only municipalities but regions as well.
Draw some lessons from the 2008 crisis in the implementation of investment recovery strategies to avoid some mistakes which were made at that time. Among the risks to avoid are to atomise the allocation of the funding in a myriad of small infrastructure projects to spend the money rapidly at the expense of long-term priorities (e.g. sustainability and resilience).
Use public investment across at all levels of government to support COVID-19 recovery over time: avoid using it as an adjustment variable; minimise fragmentation in the allocation of investment funds targeting COVID-19 responses; ensure allocation criteria are guided by strategic regional priorities; integrate social and climate objectives into recovery plans designed by all levels of government; and consider introducing a resilience-building criteria for the allocation of public investment funding for all levels of government.
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