Government finances and spending

On 23 June 2016, the UK public voted in favour of leaving the European Union. However, important decisions remain about the model for the UK’s relationship with Europe outside of the EU, not least whether the UK seeks to remain a ‘member’ of the Single Market or only seeks (tariff-free) ‘access’. This report looks at exactly what the Single Market is and distinguishes between ‘membership’ and ‘access’, including the impact on the financial services sector. It also considers the potential for new trade deals beyond the EU and assesses the economic and public finance implications of the various options. This should inform the likely trade-offs between the level of access to the Single Market and other negotiating objectives such as control of immigration and budgetary contributions.

Early exposure to adversity, such as abuse or neglect, is associated with poorer outcomes across social, education and health domains.

In this project, we have partnered with Lambeth Council to design a randomised controlled trial that tests the efficacy of different incentives for citizens to involve themselves in the co-production of public services.

The first component of the centre’s work involves partnering with the Governments of Ghana and Ethiopia to co-produce modelling tools and analyses of the key tax and benefit policy and administration issues that these countries face.

This paper estimates the effect of government electoral strength on fiscal decentralisation. Using a panel of democracies, we find that greater government electoral strength at the central level, measured by the share of seats held by the governing party in the legislature, reduces expenditure centralisation. Revenue centralisation is less affected by electoral strength.

This paper examines contrasting experiences of the United Kingdom in addressing high public debt to GDP ratios following major wars. A clear message is that interest rate / growth rate differentials were more important than primary budget surpluses for the different outcomes. The debt to GDP ratio fell very rapidly under financial repression following the Second World War but remained stubbornly high despite large budget surpluses with price deflation after the First World War. Implications for policymakers today are that averting price deflation is a high priority and that supply-side policies that raise growth could play an important part in debt reduction.

This paper first aims to reinvestigate the issue of US fiscal sustainability by using the quantile cointegration approach proposed by Xiao (2009 and 2012). Our empirical evidence indicates a quantile-dependent cointegrating relationship between government expenditures and revenues. In addition, this paper examines the long-run causality relationship between expenditures and revenues by using the vector error-correction (VEC) model with coefficients based on the different quantiles. Findings from the long-run Granger-causality analyses support the spend-and-tax hypothesis. Our investigation suggests that the government should show more discretion in increasing expenditures in the long run. Moreover, budget deficit reduction can only be achieved through reductions in government expenditures.

This report examines both the direct and indirect effects of Brexit on the UK’s public finances, based on a comprehensive review of studies analysing the short- and long- term economic effects of Brexit.