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Fiscal Policy and Government Spending

Published online by Cambridge University Press:  26 March 2020

Ray Barrell  and
Simon Kirby
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Extract

In June the Coalition Government produced a budget that aimed to reduce the government deficit quickly. The plan was based mainly on cuts in current expenditure and reductions in transfers to individuals. There are four possible reasons for reducing the deficit, and all have been used to justify the policy. The first reason might be that the cost of borrowing is currently too high, and the second could be that if deficits persist the markets could lose confidence and the cost of borrowing would rise. The third reason might be that we have to reduce the debt stock in order that we prepare for the next crisis, whilst the fourth, and perhaps most persuasive in the long run, is that it is unfair to borrow so much and therefore reduce the consumption of future generations. If either of the first two had merit there would be a case for swift consolidation, whilst if the third or fourth predominate, we should not be in any rush to act until output is nearer full capacity.

Type
The UK Economy
Information
National Institute Economic Review , Volume 214 , October 2010 , pp. F61 - F66
Copyright
Copyright © 2010 National Institute of Economic and Social Research

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References

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