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MODELLING STATE-CONTINGENT FISCAL RULES IN THE UNITED KINGDOM

Published online by Cambridge University Press:  03 November 2020

Jamie Rush
Jamie Rush*
Affiliation:
Chief Europe Economist, Bloomberg. E-mail: [email protected].
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Abstract

I assess a novel rule that was introduced in the UK in 2015. It gave the British government fiscal flexibility whenever GDP growth warranted it. This rule lasted just a year, but it had features worth exploring. I apply solution methods for models with occasionally-binding constraints to assess the demand stabilisation properties of state-contingent fiscal rules. First it is shown that fiscal flexibility can make recessions shallower. Second, it is suggested that GDP growth, rather than measures of the output gap, is a better indicator for triggering fiscal flexibility.

Keywords

linear perturbationfiscal impact multiplierDSGEmonetary policyfiscal policy macroeconomicsE62E63E37
Type
Research Article
Information
National Institute Economic Review , Volume 254 , November 2020 , pp. R41 - R53
Copyright
© National Institute of Economic and Social Research, 2020

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Footnotes

The author would like to thank referees for their comments on this paper.

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