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Fiscal Policy and the National Debt

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  • Weale, M.R.

Abstract

The UK National Debt measured as a fraction of GDP has declined sharply since the war. However the large budget deficit and adverse demographic trends mean that the budgetary position is likely to remain of concern. High budget deficits lead to a debt which cannot be serviced and fear of this may lead to higher interest rates. Even when the national debt is kept under control it crowds out domestic and foreign assets and the taxes needed to service it may distort the economy. A policy of holding tax rates virtually constant reduces distortions to the intertemporal pattern o f consumption, but means that government loses control of the path on which the national debt is stabilised. Estimates are provided of the burden imposed through crowding out, and the interaction of monetary and fiscal policy is discussed.

Suggested Citation

  • Weale, M.R., 1994. "Fiscal Policy and the National Debt," National Institute Economic Review, National Institute of Economic and Social Research, vol. 147, pages 50-61, February.
    • Handle: RePEc:cup:nierev:v:147:y:1994:i::p:50-61_4
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