The macroeconomic effects of public spending in health and education and capital and progressive taxation of profits and wealth

Özlem Onaran

No 47397, Greenwich Papers in Political Economy from University of Greenwich, Greenwich Political Economy Research Centre

Abstract: A policy mix suggested by UNITE (2024) based on increasing public spending in health and education by increasing the wage rates of public sector workers by 23% and increasing employment amounting to a further 2.79%-point increase in public spending as a ratio to GDP, a 2%-point increase in public gross fixed capital formation, a 7.1%-point increase in the average effective tax rate on profit income, a progressive wealth tax on the top 1% increasing the average effective tax rate on wealth by %0.38%-point, and a New Deal for Workers increasing labour’s power, which is estimated to increase the wage rates in the private sector by 3.24% could lead to substantial improvements in income, employment and public finance. The estimated effects suggest that in response to this policy mix GDP increases by 22.44%, employment increases by 2.83%,private investment as a ratio to GDP increases by 6.50%, public debt/GDP decreases by 9.45%-point, thanks to a very strong increases in GDP, despite a high increase in public spending.

Keywords: public spending; taxation; macroeconomy (search for similar items in EconPapers)
Date: 2024-06-17
New Economics Papers: this item is included in nep-eec and nep-pbe
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