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

Author

Listed:
  • Onaran, Özlem
  • Nikolaidi, Maria
  • Obst, Thomas

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.

Suggested Citation

  • Onaran, Özlem & Nikolaidi, Maria & Obst, Thomas, 2017. "The role of public spending and incomes policies for investment and equality-led development in the UK," Greenwich Papers in Political Economy 16194, University of Greenwich, Greenwich Political Economy Research Centre.
    • Handle: RePEc:gpe:wpaper:16194
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    File URL: http://gala.gre.ac.uk/id/eprint/16194/7/GPERC_PB17_03042017%20uk.pdf
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    More about this item

    Keywords

    Public investment; Wage share; Wage-led growth; Incomes policies; Progressive tax; Equality-led development; Europe;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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