A Comment on Two Crises

Tax revenues, in the main, rose slightly as a fraction of GDP in wealthier nations despite the existence of the Wuhan Virus situation.

That surprise outcome underlines the novel nature of the economic contraction that accompanied the first surge of Covid-19 infections, and contrasts with the global financial crisis, when revenues fell as a share of economic output, an outcome more typical of recessions.

Novel indeed. According to the Organization for Economic Cooperation and Development,

revenues across its 38 members rose to 33.5% of gross domestic product in 2020 from 33.4% in 2019. In the wake of the global financial crisis, revenues in 2009 fell to 31.8% of GDP from 32.6% of GDP in 2008.


In both instances, tax revenues and total economic output fell, but in 2020 the former declined less sharply than the latter.

These…economists…lay off the outcome of the 2020 situation to impacts on jobs.

Employment reductions in 2020 were concentrated at the lower end of the income distribution, as were falls in working hours.  This limited the impact of the Covid-19 crisis on revenues relative to the GFC [global financial crisis], in which job losses and reductions in working hours were more evenly spread.

But this is an outcome, and the economists of the OECD have mischaracterized the cause.

Look at the two examples the OECD cited for its comparison. The “global financial crisis” of 2009 was an economic event that was driven by purely economic factors—in that case, a credit crunch. The economic conditions of 2020 were driven, not by the prevalence of the Wuhan Virus, but by governments’ (over)reaction to the virus, not from the virus.

That political reaction—lockdowns, restrictions on movements, vaccine requirements levied on businesses by governments—differentially impacted economies in the manner indicated. Of course wealthier nations fared better than less wealthy ones. The less wealthy are far more dependent on those low-paying jobs.

Leave a Reply

Your email address will not be published. Required fields are marked *