IEG: The Economics of Fiscal Policy

TheCityUK has released its new quarterly report from the Independent Economists Group (IEG), titled The Economics of Fiscal Policy.

The report considers both the micro- and macro-economic impact of fiscal policy and the IEG’s work assesses the value of fiscal rules.
The analysis highlights the need for careful stewardship in the implementation of such a rule — ensuring, for example, that it isn’t applied too rigidly and remaining aware of the risk of unintended consequences when removing discretion from the policy framework.

In the report, the IEG makes the following recommendations:

  • Tax reform should concentrate on VAT, income tax and National Insurance and property taxes such as business rates
  • Any approach to reducing debt should be gradual to take account of the impact of fiscal consolidation on economic growth
  • Fiscal rules should be set in a way that does not lead to any unintended consequences of the target itself becoming more important than the value to taxpayers
  • To this end, the process that underpins the scrutiny of fiscal policy may be more important than the specific rule that is chosen – therefore, due consideration of the institutional and political context within which the rule will operate is paramount.