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The Macroeconomic Effect of the UK’s 2022 Cost-of-Living Payments

Author

Listed:
  • Max. A. Mosley

    (National Institute of Economic and Social Research (NIESR))

  • Edmund Cornforth

    (National Institute of Economic and Social Research (NIESR))

Abstract

This paper estimates the macroeconomic effect of the 2022 cost-of-living payments. Using a combination of the microsimulation model PolicyEngine UK and the global-econometric model NiGEM, we find the payments had a noticeable impact on real GDP growth - increasing it by 0.1% - but a minimal impact on inflation. Our paper finds that the transfers were strengthened due to them being targeted at ’hand-to-mouth’ consumers who would have spent more of the windfall compared to if the transfer had been distributed across the general population. Consequently, we find that 72% of the those who received the payment were hand-mouth at the time of disbursement. Despite concerns over the inflationary impact of these payments stated at the time, we find an insignificant impact on the price level. We interpret these findings as an example of why fiscal transfers should be judged on their ability to alleviate real income shocks and not on the grounds of macroeconomic stability, as their link to the latter is - at least in this case - tenuous.

Suggested Citation

  • Max. A. Mosley & Edmund Cornforth, 2023. "The Macroeconomic Effect of the UK’s 2022 Cost-of-Living Payments," Discussion Papers 2316, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:2316
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Fiscal Multiplier; Liquidity-Constrained; Social-Security;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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