Modelling and Forecasting UK Public Finances

2014

The purpose of this contribution is to look into the fiscal and debt policies in the UK and also discuss the future prospects of them. In doing so we begin with a discussion of the sustainability of deficits and debt, along with what precisely sustainability is, followed by a focused discussion of issues that relate to debt and growth, which in its turn requires a comprehensive analysis of the inter-temporal budget constraint thesis. Two further, relevant and important issues are subsequently addressed. These are, first, the relationship between the inter-temporal budget constraint thesis and sustainability, and, second, its consistency with household behaviour. The sustainability of deficits and 'functional finance', structural budgets and the impossibility of balanced structural budget are then discussed. Finally, the future of UK fiscal policy is addressed before we summarise and conclude.

SSRN Electronic Journal, 2012

In this paper, we present a disaggregated framework for the analysis of past and projected structural developments in the most relevant revenue and expenditure categories and the fiscal balance. The framework, in particular, distinguishes between the effects of discretionary fiscal policy and of macroeconomic and other developments and is sufficiently standardised to be used in multi-country studies. Here, it is applied to Belgium, Finland, Germany, Italy, the Netherlands and Portugal over the period 1998 to 2004. During this period the structural primary balance ratio clearly worsened in all countries except Finland. In Belgium, Italy and the Netherlands, both revenue and expenditure contributed to the deterioration of the structural primary balance. In Germany the large deterioration in revenue was partially offset by the decline in the structural primary expenditure ratio, while the opposite was true for Portugal. The analysis highlights the various factors that contributed to these developments.

2019

This thesis investigates the economic effects of government spending in the UK, examining if the size of spend and what the government buys play a role in the reported effects. This is done by examining the disaggregated effects of aggregated and disaggregated government spending at sectoral, industry and firm level. The first original contribution extends the simple income and expenditure model to highlight the importance of appropriately accounting for imports in sectoral government spending. The second contribution investigates the output and price effects of industry-specific government spending using a newly constructed measure of industry-specific government demand. The final contribution provides micro-level evidence by mapping firm-level central government expenditure to firms' financial accounts to report firm-level employment and wage effects of government demand. The general conclusion reached by the thesis is that not only is what the government buys important, but t...

This paper provides a model-based account of the forces shaping the dynamics of government spending in the industrialized democracies over the past few decades. The principle argument is that both short-term and long-term forces have been at work in the evolution of government spending in these countries. Emphasized here is the important role that the prevailing center of political gravity within the polity as well as the constraints that recent movements toward the integration of national capital markets into the international economic system have played in bringing about changes in government spending levels. Incorporated in the model are the hypothesized effects, in both the short and long run, of a set of cointegrated independent variables, as well as a set of other terms with impacts that are likely to be short run. The hypotheses surrounding this formulation are systematically tested and then a more encompassing model that includes the effects of domestic politics and international economic conditions is then presented and evaluated.

Metroeconomica, 1981

Cambridge Journal of Economics, 2012

The evolving response of the UK fiscal authorities to the financial crisis and recession are briefly outlined with a focus on the fiscal austerity programme introduced by the incoming Coalition government during 2010. The reasoning for that programme are critically examined and largely dismissed. It is argued that the drive for major cuts in public expenditure comes from seeking to achieve a balanced structural budget and the reductions in estimated potential output. The significance of the latter are discussed. The paper is completed by a brief consideration of alternatives.

IMF Staff Position Note, 2009

2005

This paper characterises the time series properties of debt:GDP ratios in ten EU countries over the period 1982-2009. It establishes that shocks to debt ratios persist and measures the size and source of the permanent effects of shocks as they evolve over time. The analysis shows that debt dynamics in the EU10 are complicated, involving important inter-country interactions and protracted adjustment periods of the order of ten years. We find evidence of asymmetries in the effects of different forms of 'fiscal consolidation', with unanticipated reductions in government spending having a more permanent effect than unanticipated increases in government revenue. Unanticipated business cycle fluctuations also have important long-term effects on the ratio.

Journal of Finance and Management in the Public …, 2011

After the 2008 financial crisis, recession and subsequent collapse in government revenues, the UK's public deficit reached levels not seen since the Second World War. It had to deal with gearing by borrowing one pound for every four it spent. Before the 2010 election, all of the major parties agreed that tackling the deficit was a priority, and that spending reductions would play a major part. However, they did not agree over the timing and depth of cuts.

Fiscal Studies, 2008

The views expressed in this paper are those of the authors and do not necessarily reflect those of the European Central Bank (ECB). Thanks are due to J. Marín, L. Schuknecht and an anonymous referee of the ECB Working Papers Series for useful and constructive comments, to J. Paredes and M. Rodríguez-Vives for helping us with some data, and to H. James for editorial suggestions. Pérez acknowledges financial support from the Spanish Ministry of Science and Education under projects SEC 2003-04028/C and SEJ 2006-04803 in an early stage of the paper, when he was affiliated with the University Pablo de Olavide (Seville, Spain).

2010

In this paper we investigate, by means of a century of UK data, the possibility of improving the government’s fiscal position by cutting expenditure. The period before the second world war provides examples of genuine ‘fiscal consolidations’, that is, episodes when government spending actually fell in money terms. These periods are contrasted with fiscal expansions. Spending figures are shown

1991

Fiscal deficits have been at the forefront of macroeconomic adjustment in the 1980s, both in developing and developed countries. Fiscal deficits were blamed in good part for the assortment of ills that beset developing countries in the 1980s: over-indebtedness leading to the debt crisis beginning in 1982, high inflation, and poor investment and growth performance. This paper will examine the evidence for the macroeconomic effects of fiscal deficits, using the results of a set of ten case studies done for the Bank research project,"The Macroeconomics of Public Sector Deficits."The ten cases were Argentina, Chile, Colombia, Cote d'Ivoire, Ghana, Morocco, Mexico, Pakistan, Thailand and Zimbabwe. The authors first present a summary of the stylized facts on fiscal adjustment. Then the results are presented of the decomposition of the deficit in the case studies. The results of the case studies are then used to relate deficits to macro economic imbalances: first by analyzin...