Measuring fiscal stance for the United Kingdom, 1920-1990

van der Eng, Pierre (1992): Measuring fiscal stance for the United Kingdom, 1920-1990. Published in: ANU Working Papers in Economic History No. 171 (1 October 1992): pp. 1-32.

Abstract

The purpose of this paper is twofold. First, it presents a very concise way of measuring fiscal stance. This procedure is based on the assumption that the ‘neutral change’ in the government budget can best be simulated with a long-term approximation of the underlying trend of total output. It is transparent and straight-forward, albeit to some extent necessarily arbitrary. Second, the procedure allows a long-term view on fiscal stance in the UK. It employs a consistent approach, which makes it possible to unify the discussions which have hitherto focussed on separate decades on the basis of measures of fiscal stance, which were difficult to compare. The results of the exercise show that government policies added to the total demand in the economy during the late 1930s. The impact was sustained over the years 1948-67, although the short-term impact of policies caused the stance of fiscal policy to fluctuate. After 1975 a gradual decline of public expenditure started, while revenues remained at level. During 1979-1990 the net contribution of the public budget to total demand has been negative in an economic sense. As far as governments attempted to smooth business cycles by fluctuating the stance of fiscal policy, their attempts do not seem to have been successful. The growth of GDP was subjected to business cycles throughout the period under observation. As far as the impact had some significance, it appeared to have prevented a major set-back in output growth in the 1930s. In contrast, it seems to have increased the shortfall in total demand in the 1980s.

• Item Type: MPRA Paper
• Language: English
• Keywords: fiscal stance; fiscal policy; budget deficit; public expenditure; business cycles; United Kingdom; United States
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; N - Economic History > N1 - Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations > N10 - General, International, or Comparative; H - Public Economics > H5 - National Government Expenditures and Related Policies > H50 - General; H - Public Economics > H6 - National Budget, Deficit, and Debt > H60 - General; N - Economic History > N1 - Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations > N14 - Europe: 1913-

References

Adams, C.; P.R. Fenton and F. Larsen (1987) ‘Potential Output in Major Industrial Countries’ in Staff Studies for the World Economic Outlook. (Washington DC: IMF) 1-38.

Artis, M.J. (1972) ‘Fiscal Policy for Stabilization’ in W. Beckerman (ed.) The Labour Government’s Economic Record: 1964-1970. (London: Duckworth) 262-299.

Artis, M.J. (1978) ‘Monetary Policy’ in Blackaby, F.T. (ed.) (1978) British Economic Policy 1960-74. (Cambridge: Cambridge University Press) 258-303.

Artis, M.J. and C.J. Green (1982) ‘Using the Treasury Model to Measure the Impact of Fiscal Policy, 1974-79’ in M.J. Artis et al. (eds.) Demand Management Supply Constraints and Inflation. (Manchester: Manchester University Press) 30-47.

Bispham, J.A. and A. Boltho (1982) ‘Demand Management’ in A. Boltho (ed.) The European Economy. (Oxford: Oxford University Press) 289-328.

Biswas, R.; C. Johns and D. Savage (1985) ‘The Measurement of Fiscal Stance’, National Institute Economic Review, No.113: 50-64.

Blanchard, O.J. (1990) ‘suggestions for a New Set of Fiscal Indicators.’ OECD Department of Economics and Statistics Working Paper No.79. Paris: OECD.

Boltho, A. (1981) ‘British Fiscal Policy - Stabilising or Destabilising?’, Oxford Bulletin of Economics and Statistics, 43: 357-362.

Booth, A. (1987) ‘Britain in the 1930s: A Managed Economy?’, Economic History Review, 40: 499-522.

Booth, A. and S. Glynn (eds.) (1987) The Road to Full Employment. London: Allen and Unwin

Bristow, J.A. (1968) ‘Taxation and Income Stabilization’, Economic Journal, 78: 299-311.

Broadberry, S.N. (1984) ‘Fiscal Policy in Britain during the 1930s’, Economic History Review, 37: 95-102.

Cairncross, A.K. (1981) ‘The Postwar Years 1945-77’ in R. Floud and D. McCloskey (eds.) The Economic History of Britain since 1700, Vol.2. (Cambridge: Cambridge University Press) 370-416.

Chand, S.K. (1977) ‘Summary Indicators of Fiscal Influence’, IMF Staff Papers, 24: 405-449.

Chouraqui, J.C.; R.P. Hagemann and N. Sartor (1990) ‘Indicators of Fiscal Policy: A Reassessment.’ OECD Department of Economics and Statistics Working Paper No.78. Paris: OECD.

Clark, C. (1957) The Conditions of Economic Progress. London: McMillan.

CSOa (various years) National Income and Expenditure. London: Central Statistical Office.

CSO (1990a) United Kingdom National Accounts. London: Central Statistical Office.

CSO (1990b) Economic Trends Annual Supplement. London: Central Statistical Office.

Dow, J.C.R. (1964) The Management of the British Economy 1945-60. Cambridge: Cambridge University Press.

Feinstein, C.H. (1972) National Income, Expenditure and Output of the United Kingdom 1855-1965. Cambridge: Cambridge University Press.

Godley, W.A.H. and J.R. Shepherd (1964) ‘Long-Term Growth and Short-Term Policy: The Productive Potential of the British Economy and Fluctuations in the Pressure of Demand for Labour, 1951-1962’, National Institute Economic Review, No.29: 26-38.

Hansen, B. (1969) Fiscal Policy in Seven Countries 1955-1965. Paris: OECD.

Heller, P.S.; R.D. Haas and A.S. Mansur (1986) ‘A Review of Fiscal Impulse Measure.’ IMF Occasional Paper No.44. Washington: International Monetary Fund.

Hicks, J.R. and U.K. Hicks (1973) ‘Britsh Fiscal Policy’ in H. Giersch (ed.) Fiscal Policy and Demand Management. (Tübingen: Mohr) 142-154.

Little, I.M.D. (1962) ‘Fiscal Policy’ in G.D.N. Worswick and P. Ady (eds.) The British Economy in the Nineteen-Fifties. (Oxford: Clarendon Press) 231-300.

Lotz, J. (1971) ‘Techniques of Measuring the Effects of Fiscal Policy.’ OECD Economic Outlook Occasional Studies. (July 1971) 3-31.

Mackenzie, G.A. (1988) ‘Are All Summary Indicators of the Stance of Fiscal Policy Misleading?’ IMF Working Paper WP/88/112. Washington: IMF.

Matthews, R.C.O. (1968) ‘Why Has Britain Had Full Employment since the War?’, The Economic Journal, 78: 555-569.

Matthews, R.C.O.; C.H. Feinstein and J.C. Odling-Smee (1982) British Economic Growth 1856-1973. Oxford: Oxford University Press.

Middleton, R. (1981) ‘The Constant Employment Budget Balance and British Budgetary Policy, 1929-39’, Economic History Review, 34: 266-286.

Middleton, R. (1989) ‘The Rise and Fall of the Managed Economy’ in A. Digby and Ch. Feinstein (eds.) New Directions in Economic and Social History. (London: MacMillan) 89-101.

Miller, M. (1985) ‘Measuring the Stance of Fiscal Policy’, Oxford Review of Economic Policy, 1: 44-57.

Musgrave, R.A. (1964) ‘On Measuring Fiscal Performance’, Review of Economics and Statistics, 46: 213-220.

Musgrave, R.A. and P.B. Musgrave (1968) ‘Fiscal Policy’ in R. Caves et.al. (eds.) Britain’s Economic Prospects. (Washington: Brookings Institution) 21-67.

Peacock, A.T. and J. Wiseman (1961) The Growth of Public Expenditure in the United Kingdom. Princeton: Princeton University Press.

Prest, A.R. (1968) ‘Sense and Nonsense in Budgetary Policy’, Economic Journal, 78: 1-18.

Price, R.W.R. (1978) ‘Budgetary Policy’ in Blackaby, F.T. (ed.) (1978) British Economic Policy 1960-74. (Cambridge: Cambridge University Press) 135-217.

Price, R.W.R. and P. Muller (1984) ‘Structural Budget Indicators and the Interpretation of Fiscal Policy Stance in OECD Economies’, OECD Economic Studies, No.3: 27-58.

Richardson, H.W. (1967) Economic Recovery in Britain, 1932-9. London: Weidenfeld and Nicolson.

Savage, D. (1982) ‘Fiscal Policy, 1974/5 - 1980/1: Description and Measurement’, National Institute Economic Review, No.99: 85-95.

Sayers, R.S. (1956) Financial Policy, 1939-1945. London: Longmans and Green.

Snyder, W.W. (1970) ‘Measuring Economic Stabilization: 1955-65’, American Economic Review, 60: 924-933.

Stewart, M. (1972) Keynes and After. Harmondsworth: Penguin.

Tomlinson, J. (1981) ‘Why Was There Never A `Keynesian Revolution' in Economic Policy?’, Economy and Society, 10: 72-87.

Tomlinson, J. (1985) British Macroeconomic Policy since 1940. London: Croom Helm.

Tomlinson, J. (1988) ‘Can Governments Manage the Economy?’ Fabian Tract No.524. London: The Fabian Society.

Torres, R. and J.P. Martin (1990) ‘Measuring Potential Output in Seven Major OECD Countries’, OECD Economic Studies, No.14: 127-149.

USDC (1986) The National Income and Product Accounts of the United States, 1929-82. Statistical Tables. Washington DC: United States Department of Commerce.

USDC (1986-90) Survey of Current Business. Washington DC: United States Department of Commerce.

Ward, T.S. and R.R. Neild (1978) The Measurement and Reform of Budgetary Policy. London: Heinemann.

Worswick, G.D.N. (1971) ‘Fiscal Policy and Stabilization in Britain’ in A.K. Cairncross (ed.) Britain’s Economic Prospects Reconsidered. (London: Allen and Unwin) 36-60.

Worswick, G.D.N. (1977) ‘The End of Demand Management?’ Lloyds Bank Review, No.123: 1-18.

Worswick, G.D.N. (1991) Unemployment: A Problem of Policy - Analysis of British Experience and Prospects. Cambridge: Cambridge University Press.