Post-Pandemic Fiscal Sustainability & Social Spending Trade-offs: Welfare vs. stimulus: France, U.K., U.S. universal basic income trials, India’s NREGA.

Prologue – the post‑COVID ledger

Between March 2020 and early 2022 governments spent or back‑stopped more than US $20 trillion—roughly one‑fifth of global GDP—to keep households, jobs and credit systems alive. The result was an unplanned natural experiment in the trade‑off between emergency stimulus and permanent welfare architecture. Four years on, debt ratios and interest bills have reached levels unseen since World War II, yet electorates still expect resilient safety nets. The central question is no longer whether governments can spend in a crisis, but how much of that elevated social outlay can be normalised without derailing debt sustainability or social cohesion.

This special report follows the arc from crisis stimulus to structural welfare in four diverse fiscal models—France’s social‑insurance state, the United Kingdom’s hybrid Beveridge‑Meets‑Market model, the United States’ patchwork of tax credits and local basic‑income pilots, and India’s rights‑based but resource‑constrained safety net anchored by NREGA. Along the way we test the numbers against economic theory—Keynesian multipliers, Ricardian neutrality, Modern Monetary Theory (MMT), the social‑investment state, Rawlsian fairness and Musgrave’s fiscal functions—to see which ideas survived the pandemic stress‑test.

1.  A theoretical toolkit for the 2020s

1. Keynesian stimulus.  COVID‑era output gaps made short‑run fiscal multipliers unusually large, especially for targeted cash transfers (IMF working‑paper median multiplier for transfers in emerging markets: 1.9). 

2. Ricardian equivalence & tax‑smoothing.  If households internalise future taxes, transfers lose potency. Evidence from the crisis suggests only partial Ricardian behaviour—saving rates spiked in 2020 but normalised once uncertainty fell.

3. Modern Monetary Theory.  MMT’s claim that monetarily sovereign governments face real‑resource, not financial, limits looked plausible while rates were near zero; the 2022–24 inflation and the doubling of US net‑interest outlays to $949 bn in FY 2024 have re‑imposed nominal constraints. 

4. Okun vs. Rawls.  The classic efficiency‑equity trade‑off (Okun) ran head‑first into Rawls’ difference principle: support the least well‑off even at efficiency cost. Pandemic politics leaned Rawlsian; the post‑pandemic pivot is edging back toward Okun.

5. Automatic stabilisers & social investment.  Systems with large in‑built transfers (France, UK) delivered rapid household income support automatically, but at the price of higher structural deficits. India’s “work‑for‑wages” model acted as a quasi‑automatic stabiliser in rural labour markets.

2.  Global scoreboard: debts, deficits and interest bills

Indicator (2024)	United States	United Kingdom	France	India
General‑govt. gross debt / GDP	123 % (IMF WEO)	95.5 % (Feb 2025)	113 %	57 % (central‑govt only, FY 25 est.)
Fiscal deficit / GDP (latest)	6.4 % (FY 2024)	5.3 %* FY 24/25 (OBR/ONS)	5.8 % (2024)	4.9 % target FY 25
Net interest / GDP	3.3 % (FY 24)	3.1 % (OBR est.)	2.0 %	1.6 % (BE 24/25)
Headline pandemic stimulus	CARES + ARP ≈ $5 tn	Furlough scheme £70 bn (2020‑21)	Activité partielle €27 bn (2020)	PM‑GKY + NREGA surge ₹2.3 tn (2020)

*Deficit figures for the UK fluctuate with PSNB methodology; OBR projects 4.8 % in 2024‑25, but out‑turns to February imply ~5.3 %.

3.  United States – stimulus super‑size, welfare micro‑pilots

3.1  From stimulus cheques to basic‑income experiments

Washington’s pandemic outlays hit $5 trn—equivalent to the entire German GDP. The CARES Act alone cost $2 trn (45 % of pre‑COVID federal spending).  Direct cheques ($1 200, $600, $1 400) provided an unplanned mass trial of quasi‑UBI: by December 2021 476 million payments worth $803 bn had been sent.

Local guaranteed‑income pilots

Stockton, California gave 125 low‑income adults $500/month for two years. Final evaluation found:

• 40 % spent on essentials, 25 % on food;

• full‑time employment rose from 28 % to 40 %;

• anxiety & fatigue indices fell by 12 pp relative to control. 

California has since funded $25 m for seven state‑run pilots. 

3.2  Fiscal sustainability outlook

• Deficit: 6.4 % of GDP; CBO baseline breaches pre‑COVID record through 2030 even without new programmes. 

• Debt: Public debt 97.8 % of GDP (gross ≈123 %).

• Interest: Net interest up 34 % y/y to nearly $1 trn—larger than Medicaid. 

Theoretical tension.  Keynesian arguments support permanent cash transfers as automatic stabilisers; Ricardian critics warn rising interest absorbs fiscal space. The US debate now hinges on pay‑fors (wealth tax, carbon fee) versus MMT claims that the Fed can monetise so long as inflation is tame—harder after the 2022‑23 price spike.

4.  United Kingdom – from furlough to “fiscal rules”

4.1  The £70 billion wage shield

The Coronavirus Job Retention Scheme (CJRS) covered 11.7 m jobs at a cost of £70 bn.  With wages once wholly financed by HM Treasury, the CJRS functioned as a temporary UBI for employees.

Pilot basic income for care‑leavers (Wales).  Since July 2022, 635 eighteen‑year‑olds receive £1 600/month for two years. Early evaluation shows reduced homelessness risk and improved training take‑up, but fiscal scaling would exceed 5 % of Welsh GDP. 

4.2  Debt dynamics

• Debt: Public sector net debt 95.5 % of GDP (Feb 2025) after interest‑rate shock. 

• Deficit: £132 bn in first 11 months FY 24/25, implying 5 %+ of GDP. 

• Interest bill: £110 bn projected for 2024‑25—rivaling education budget.

Fiscal rule‑making.  The OBR’s March 2025 forecast requires debt/GDP falling by 2028‑30 and PSNB <3 %. Achieving the rule would necessitate £30‑40 bn in tax rises or spending cuts. Political economy theory (Persson–Tabellini) predicts such rules bind only if bipartisan; with an election due, commitment is uncertain.

5.  France – a resilient welfare state under EU scrutiny

5.1  Pandemic response

France leaned on its existing insurance schemes: chômage partiel (short‑time work) subsidised up to 84 % of net salary; 11 m workers used it in 2020–21. Direct fiscal cost in 2020: €27.1 bn.  Small‑business “solidarity funds” added another €18 bn.
5.2  Current fiscal stance

• Debt: 113 % of GDP at end‑2024, up from 98 % pre‑COVID. 

• Deficit: 5.8 % of GDP in 2024 despite expiry of most emergency measures. 

• Interest: 2.0 % of GDP; every 100‑bp rate rise adds ≈€2.5 bn annually.

EU fiscal framework.  Under the re‑activated Stability Pact (0.5 % structural balance glide‑path), France must narrow its deficit by ≈1 pp per year—forcing hard choices among pension reform, health spending and green investment.

Theory check.  France exemplifies the social‑investment state: high transfers financed by high taxes can coexist with growth if human‑capital returns exceed tax wedges. Yet with debt above 110 %, tax‑smoothing logic and ageing demographics complicate the model.

6.  India – rights‑based workfare meets tightening fiscal space

6.1  The NREGA anchor

The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) exploded from 2.8 bn person‑days (FY 19) to 4.7 bn in FY 21, cushioning migrant‑worker distress. Budget allocation for FY 2024‑25: ₹86 000 cr (US $10.3 bn), the highest ever. 

6.2  Fiscal path

• Deficit target: 4.9 % of GDP in 2024‑25, down from 5.6 %. 

• Debt: Central‑government debt 57 % of GDP; combined (states+centre) ≈ 84 %.

• Interest: Interest already absorbs 25 % of revenue.

6.3  UBI debates

The 2017‑18 Economic Survey floated a quasi‑UBI of ₹7 200 per capita (1 % of GDP) in lieu of multiple subsidies. Political will is weak; leakage concerns persist despite JAM‑trinity (Jan‑Dhan accounts + Aadhaar + Mobile). Evaluations suggest that targeted digital transfers (PM‑KISAN: ₹6 000 to farmers) deliver higher bang‑for‑rupee than universal cash.

Theory check.  In a developing‑economy context, fiscal multipliers on rural employment and infrastructure are >1, while untargeted transfers risk inflation or crowding‑out of capital spending—echoing Lewis‑Kaldor dual‑economy arguments.

7.  Comparative analytics – what the data say

7.1  Stimulus vs. permanent welfare

• United States shows how temporary universal cheques stabilise demand without creating a new entitlement—but the political backlash against cliff‑edge expiry was fierce.

• United Kingdom shifted from a near‑universal wage subsidy to stringent fiscal rules within three years, illustrating time‑inconsistent preferences in Kydland‑Prescott theory.

• France opted for insurance‑style automaticity, protecting jobs but embedding deficits.

• India relied on self‑selecting workfare and digital identification to limit fiscal leakage, consistent with Besley‑Coate models of targeted transfers.

7.2  Welfare multipliers & growth

IMF meta‑analysis finds investment spending multipliers (0.3 advanced; 1.7 emerging) exceed consumption transfers (–0.5 advanced; 1.9 emerging).  That suggests India’s capital‑heavy budgets could be growth‑positive even with high NREGA, while the UK and France face lower multipliers on age‑related outlays unless offset by human‑capital returns.

7.3  Interest‑rate sensitivity

Every 100‑bp rise in average funding cost adds:

• US $260 bn to gross interest by 2030.

• UK £18 bn annually (OBR).

• France €14 bn over three years.

• India ₹150 bn (central).

With real rates positive again, Blanchard’s 2019 “r<g” reassurance has weakened.

8.  Policy options – a menu for sustainable generosity

Lever	Political economy	Fiscal impact	Equity impact	Notes
Wealth/solidarity taxes (US, FR, UK)	Popular but lobby‑intensive	0.5–1 % GDP	Progressive	France’s 2018 ISF repeal cautionary.
Carbon pricing (all)	Climate dividend narrative	0.7 % GDP (OECD avg)	Mixed; regressive unless rebated	Fits dual goal of green transition + revenue.
Digital‑services levy (UK, India)	Risks US retaliation	0.1 % GDP	Neutral	Transitional until OECD Pillar 1/2.
Better targeting of transfers (US EITC reform; India JAM)	Bureaucratic capacity needed	Savings 0.3–0.5 % GDP	May raise exclusion errors	Tech‑driven ID mitigates.
Growth‑oriented capital outlay (all)	Crowds‑in private inv.	Debt ratio stabilises via denominator	Long‑run inclusive if skills align	Keynes‑Meade balanced‑budget multiplier logic.

9.  Forward look – navigating the 2030 inflection

1. Demography.  Dependency ratios will add 1–2 pp of GDP to pension/health bills in advanced economies by 2030.

2. Green transition.  Net‑zero pathways require public investment of 1 – 1.5 % of GDP annually.

3. Geopolitics.  Defence spending uplifts (NATO 2 % pledge; Indo‑Pacific posture) compete with welfare.

4. Interest‑rate regime.  The era of “free debt” is over; fiscal‑dominance scenarios risk inflation–debt spirals.

Synthesis.  The pandemic proved that rich and middle‑income states can mobilise unprecedented fiscal firepower—but also that political expectations re‑anchor around crisis baselines. A sustainable social contract in the 2020s will require:

• Integrated design: automatic stabilisers that scale down as well as up.

• Evidence‑based targeting: digital ID, real‑time earnings data, behavioural nudges.

• Growth alignment: channeling stimulus toward human‑capital and green capital that raise the future tax base.

• Transparent fiscal anchors: rules that flex for shocks yet bind over the cycle—focusing on net interest/GDP rather than headline debt.

Epilogue – beyond the binary

Framing the debate as “welfare versus stimulus” is itself a false dichotomy. Well‑calibrated welfare systems are macro‑stabilisers; equally, emergency stimulus that fails to evolve into efficient long‑term architecture becomes a fiscal albatross. The post‑COVID record of France, the UK, the US and India shows that design, administrative capacity and political credibility—not ideology alone—determine whether social spending fortifies or fractures fiscal sustainability.

Sources

• United States FY 2024 deficit and debt data – CBO Monthly Budget Review, March 2025. 

• CARES Act size – USAFacts, Sept 2020 article. 

• UK public‑finance out‑turns – Reuters, 21 Mar 2025. 

• Furlough scheme cost – House of Commons Library briefing CBP‑9152. 

• OBR debt ratios – OBR EFO March 2025. 

• France 2024 deficit & debt – INSEE March 2025 notification. 

• Activité partielle cost – Le Figaro, 27 Jan 2021. 

• India fiscal‑deficit target – PRS Budget Analysis 2024‑25. 

• NREGA budget allocation – PIB press release 25 Mar 2025. 

• Stockton SEED results – University of Pennsylvania study summary, 2023. 

• California statewide pilots – CalMatters report, Feb 2023. 

• IMF working paper on fiscal multipliers – Geli & Moura 2023.