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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.

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    Questions about economics, government finance, and politics are off-topic here. There are other Stack Exchange sites for economics and politics where this kind of question may be on-topic, but I suggest you read about each site at their respective Help Centers before posting. May 13, 2020 at 21:36

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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.

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  • But I thought they were printing it? If not, who are they borrowing from? And won't this new debt just push old debt to the surface, like a tube of toothpaste? May 13, 2020 at 12:32
  • @DerekFulton Probably some of both QE and gilts: "The Debt Management Office, which raises cash for the Treasury, announced it would seek to raise £45bn in April - record cash issuance of UK government bonds, known as gilts - compared with an anticipated figure of £16bn at the time of the Budget earlier this month." bbc.co.uk/news/business-52106253 . As I said, pensions will often hold a proportion in gilts as a safe haven to protect against downturns in the stock markets.
    – richardb
    May 13, 2020 at 14:36

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