ETH Professors Sturm and Gersbach: A «short-time working regime for capital» is now needed

With two new supporting pillars, the federal government supports companies that are currently in a precarious situation: short-time work and liquidity support. These pillars are important, but they cannot sustain all parts of the economy reliably. The companies lack income to pay for rent, leases or interest on loans, for example. If they have to bear these capital costs on their own, many of them - especially SMEs - will either go out of business or will not be able to invest enough because of the high debt burden after the crisis. This puts a sustained brake on economic dynamism.

Hans Gersbach (Professor of Macroeconomics, Innovation and Policy, ETH Zurich) and Jan-Egbert Sturm (Professor of Applied Macroeconomics and Director of the KOF Institute, ETH Zurich) therefore call for a third pillar: a «short-time working regime for capital». Based on their proposal for a large rescue package, the ETH professors suggest that companies’ capital costs should be partially reimbursed in the event of a loss of production.

This reimbursement could be calculated, for example, on the basis of rental and lease agreements or the interest payments on loans before the outbreak of the coronavirus. A more lump-sum solution is also possible in the form of a partial refund of value-added taxes for ongoing production losses. For practical implementation, the channels already used for short-time work compensation and liquidity support are suitable.

«Corona surcharge» after the end of the crisis

«We know from research that companies with high levels of debt reduce their investments significantly after a crisis. We should prevent this,» say Gersbach and Sturm. The «short-time working regime for capital» reduces the risk of insolvency and ensures that the economy can get back on track and invest immediately after the pandemic. In addition, it would ensure a somewhat fairer distribution of the burdens caused by the crisis in the economy and society.

«As soon as the economy has recovered, the burden sharing could also be implemented retroactively,» say Gersbach and Sturm. For example, through a kind of «Corona surcharge» - a temporary increase in profit tax rates. «After the pandemic, all companies should contribute to the costs of overcoming the crisis, as part of their economic success. A temporary corona surcharge on their profits would be a fair instrument for this,» Gersbach and Sturm explain their proposal.