Borrow Now and Tax Later to Save Young Jobs, ECB Study Shows

(Bloomberg) -- Young people are hit more than twice as hard as older generations by deep recessions, so governments should borrow as much as needed to save their jobs, according to a study published by the European Central Bank.

The paper shows that economic downturns tend to reverberate most strongly through different channels for different age groups. Younger households are more reliant on work to earn an income against which they can borrow. Older generations are more likely to have financial assets.

While a slump can depress asset prices, the far bigger pain comes through job losses for the young, according to Alessandro Ferrari, a researcher at the Bank of Italy. Not only do they lose income when they need it most, but the experience makes them more risk-averse, which reduces the returns on their future savings.

Governments have grappled with the best way to finance their response to the current crisis. While most have pumped in fiscal support to protect jobs for now, politicians are split over how long that should continue and whether taxes should rise to pay down the unprecedented debt burdens.

Ferrari concludes that governments would do best to ramp up borrowing now in favor of younger households, and worry about the burden later. By keeping younger workers employed, the economy as a whole benefits and increases the wealth of the next generation -- which can then be taxed.

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