Governments have the least bargaining power and so will bear the income loss

Like after the subprime crisis, the COVID crisis is probably going to lead to a permanent loss of income (GDP) relative to what the overall level of income would have been without the crisis. This income loss will be shared among the various groups of economic agents according to their relative bargaining power. Companies have strong bargaining power: under pressure from shareholders, they will be able to restore their profitability by driving down wages, by reducing employment and by obtaining government support with the threat of shutting down activity or offshoring. Wage earners also have strong bargaining power with respect to governments: in democracies, faced with the threat of populism, governments will want to avoid unemployment, poverty and bankruptcies. Governments therefore have weak bargaining power with respect to companies and wage earners. So it is governments that will bear the initial income loss. This means that we can expect an increase in fiscal deficits in OECD countries of the same magnitude as the loss in the level of GDP caused by the COVID crisis. This initial choice for sharing of the income loss will of course have knock-on effects for monetary policies and asset prices , which will also have redistributive effects . But the initial choice is clear: the income loss will be borne primarily by governments.