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The Macroeconomic Record of the Coalition Government

Published online by Cambridge University Press:  01 January 2020

Simon Wren-Lewis
Simon Wren-Lewis*
Affiliation:
Oxford University, Blavatnik School of Government
*
E-mail: [email protected]
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Abstract

This paper examines the outcomes for changes introduced by the UK Coalition government in 2010. The Office for Budget Responsibility (OBR) is generally regarded as a success, and should become a permanent part of fiscal policymaking. The form of the primary fiscal mandate, involving a five-year rolling target, appears to be a sensible way to shape fiscal decisions when monetary policy is able to stabilise the economy. Unfortunately it was introduced, along with a five-year programme of severe fiscal consolidation (austerity), while the economy was in a liquidity trap. The OBR estimates austerity reduced GDP growth by 1 per cent in both 2010–11 and 2011–12, and monetary policy was unable to offset this. For the Liberal Democrats a misreading of the Eurozone crisis may have been responsible for this mistake, but for the Conservatives this mistake appears to derive from an unconventional view that the liquidity trap is unimportant.

Keywords

UK Coalition governmentfiscalmonetaryliquidity trapzero lower boundfiscal councilfiscal rulesE02E62E65
Type
Research Articles
Information
National Institute Economic Review , Volume 231 , February 2015 , pp. R5 - R16
Copyright
Copyright © 2015 National Institute of Economic and Social Research

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Footnotes

I am grateful to Giles Wilkes and Simon Kirby for valuable comments, but responsibility for the end result is entirely mine.

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