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Long Term Effects of Fiscal Policy on the Size and the Distribution of the Pie in the UK


  • Xavier Ramos
  • Oriol Roca-Sagales


This paper provides a joint analysis of the output and distributional long term effects of various fiscal policies in the UK, using a Vector Autoregression approach. Our findings suggest that the output effects of fiscal policies are consistent with the Keynesian paradigm for both direct and indirect taxes but not for public spending. The estimated long term impact on GDP of increasing all type of expenditure and taxes analysed is negative and especially strong in the case of current expenditure. We also find significant distributional effects associated to fiscal policies, indicating that an increase in public spending and direct taxes reduces inequality while a raise in indirect taxes increases income inequality. Finally, the relationship between inequality and output is also explored.

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  • Xavier Ramos & Oriol Roca-Sagales, 2007. "Long Term Effects of Fiscal Policy on the Size and the Distribution of the Pie in the UK," RSCAS Working Papers 2007/39, European University Institute.
  • Handle: RePEc:rsc:rsceui:2007/39

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    References listed on IDEAS

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    More about this item


    Fiscal policy; inequality; UK; VAR models;

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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