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Fiscal Policy and the National Debt

Published online by Cambridge University Press:  26 March 2020

M.R. Weale
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Abstract

The UK National Debt measured as a fraction of GDP has declined sharply since the war. However the large budget deficit and adverse demographic trends mean that the budgetary position is likely to remain of concern. High budget deficits lead to a debt which cannot be serviced and fear of this may lead to higher interest rates. Even when the national debt is kept under control it crowds out domestic and foreign assets and the taxes needed to service it may distort the economy. A policy of holding tax rates virtually constant reduces distortions to the intertemporal pattern o f consumption, but means that government loses control of the path on which the national debt is stabilised. Estimates are provided of the burden imposed through crowding out, and the interaction of monetary and fiscal policy is discussed.

Type
Articles
Information
National Institute Economic Review , Volume 147 , February 1994 , pp. 50 - 61
Copyright
Copyright © 1994 National Institute of Economic and Social Research

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Footnotes

∗

In addition to a great deal of help from the other members of the group, I have also benefitted from helpful comments from Anthony Atkinson and Ray Barrell.

The Review is pleased to give hospitality to CLARE Group articles, but is not necessarily in agreement with the views expressed; responsibility for these rests with the author. Members of the CLARE Group are M.J. Artis, A.J.C. Britton, W.A. Brown, W.J Carlin, J.S. Flemming, C.A.E. Goodhart, J.A. Kay, R.C.O. Matthews, D. Miles, M.H. Miller, P.M. Oppenheimer, M.V. Posner, W.B. Reddaway, J.R. Sargent, M.FG. Scott, Z.A. Silberston, J.H.B. Tew, S. Wadhwani and M.R. Weale.

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