Policy Interventions to Mitigate the Long-Run Costs of Brexit

This paper examines the long-term macroeconomic impacts of Brexit on the UK economy employing a dynamic general equilibrium model that incorporates endogenous firm entry, price markups and market competition. By integrating the trade frictions introduced by Brexit, the model explains how increased trade costs have altered firm behaviour, market structure, and broader economic performance. We assess a range of policy responses, from theoretically optimal but practically difficult tax-subsidy schemes, to more realistic measures aimed at reducing firm entry barriers, encouraging private and public investment, and subsidising labour costs. Our findings underscore the critical role of policies that can most directly influence firm creation, investment, and competition in addressing the structural challenges Brexit has introduced.