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The Implications of the Comprehensive Spending Review for the Long-Run Growth Rate: a View From the Literature

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  • Richard Kneller

    (National Institute of Economic and Social Research)

Abstract

In I998 the Government set out its expenditure plans for the remainder of the current Parliament in the Comprehensive Spending Review. Announced within this were large increases in expenditure on education, health and capital spending with the objective of meeting the Government's manifesto pledges. Yet as the recent report by the Treasury on the UK's trend rate of growth states, the expenditure plans of the CSR may also help to raise the growth potential of the economy, although no quantitative assessment of this was made. Using evidence from the empirical growth literature, this article examines the possible effects of these policies on the long-run growth rate of the economy. In general the results from the empirical literature are non-robust, but by conducting a very different style of review we are able to identify several studies from which to determine what these effects might be. Using a stylised version of the CSR we estimate that it may raise the long-run growth rate by as much as 0.I of a percentage point per annum, although there is some sensitivity to the underlying assumptions. This appears to confirm the likelihood of modest upside risk to the Treasury's estimate of trend growth.

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  • Richard Kneller, 2000. "The Implications of the Comprehensive Spending Review for the Long-Run Growth Rate: a View From the Literature," National Institute Economic Review, National Institute of Economic and Social Research, vol. 171(1), pages 94-105, January.
  • Handle: RePEc:sae:niesru:v:171:y:2000:i:1:p:94-105
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    Cited by:

    1. von-Hagen, Jurgen & Bruckner, Matthias, 2002. "Monetary and Fiscal Policy in the European Monetary Union," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(S1), pages 123-154, December.
    2. Richard Kneller & Norman Gemmell, 2002. "Fiscal Policy, Growth and Convergence in Europe," European Economy Group Working Papers 14, European Economy Group.
    3. Nicholas Crafts & Mary O'Mahony, 2001. "A perspective on UK productivity performance," Fiscal Studies, Institute for Fiscal Studies, vol. 22(3), pages 271-306, September.
    4. Jürgen von Hagen, 2006. "Un conseil de stabilité pour assurer la soutenabilité budgétaire en UEM," Économie et Prévision, Programme National Persée, vol. 173(2), pages 7-25.

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