The role of public spending and incomes policies for investment and equality-led development in the UK

Ozlem Onaran, Maria Nikolaidi and Thomas Obst

No 16194, Greenwich Papers in Political Economy from University of Greenwich, Greenwich Political Economy Research Centre

Abstract: This policy brief presents how a mix of fiscal and labour market policies could affect growth, investment and public budget in the UK. Based on an econometric model, we simulate the joint impact of an increase in public spending by 1% of GDP (about £20bn per year) along with more progressive taxation (increasing effective tax burden on capital by 1% and decreasing tax burden on labour by 1%) and an increase in the wage share by 1% of GDP. As a result, GDP increases by 3.7%. Private investment increases as well by 0.7% as a ratio to GDP. The budget balance in the UK improves by 0.2% as a ratio to GDP. Inflation increases only slightly: the price level goes up by 1.8 percentage points. The effects are even more favourable if policies are implemented simultaneously together with our trade partners in the EU.

Keywords: Public investment; Wage share; Wage-led growth; Incomes policies; Progressive tax; Equality-led development; Europe (search for similar items in EconPapers)
JEL-codes: C23 D22 G31 (search for similar items in EconPapers)
Date: 2017-01-19
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Persistent link: https://EconPapers.repec.org/RePEc:gpe:wpaper:16194

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