Long Term Effects of Fiscal Policy on the Size and the Distribution of the Pie in the UK

Xavi Ramos () and Oriol Roca-Sagalés

No 2007/39, RSCAS Working Papers from European University Institute

Abstract: This paper provides a joint analysis of the output and distributional long term effects of various fiscal policies in the UK, using a Vector Autoregression approach. Our findings suggest that the output effects of fiscal policies are consistent with the Keynesian paradigm for both direct and indirect taxes but not for public spending. The estimated long term impact on GDP of increasing all type of expenditure and taxes analysed is negative and especially strong in the case of current expenditure. We also find significant distributional effects associated to fiscal policies, indicating that an increase in public spending and direct taxes reduces inequality while a raise in indirect taxes increases income inequality. Finally, the relationship between inequality and output is also explored.

Keywords: Fiscal policy; inequality; UK; VAR models (search for similar items in EconPapers)
JEL-codes: C5 E6 H3 (search for similar items in EconPapers)
Date: 2007-12-18
New Economics Papers: this item is included in nep-cba and nep-mac
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Journal Article: Long-Term Effects of Fiscal Policy on the Size and Distribution of the Pie in the UK* (2008)
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