The impact of alternative paths of fiscal consolidation on output and employment in the UK
Nitika Bagaria, Dawn Holland, Jonathan Portes, John Van Reenen 14 August 2012
While most economists agree that the UK and other countries need to cut back to ensure the sustainability of their public finances, the debate rages over when and by how much. This column argues that the timing matters – starting too early, before the economy has recovered, will have substantial economic costs.
In 2009-2010, the UK's budget deficit was about 11% of GDP (see here); there was no dispute among economists that a credible plan for fiscal consolidation was required. The discussion turned on the timing, given the fact that short-term interest rates are effectively at zero, output is substantially below capacity, and unemployment well above most estimates of the natural rate of unemployment.
Global crisis Macroeconomic policy Taxation
fiscal policy, UK, global crisis, Fiscal crisis, austerity, consolidation