An empirical investigation of UK fiscal policyTools Van de Schootbrugge, Sam (2025) An empirical investigation of UK fiscal policy. PhD thesis, University of Nottingham.
AbstractThis thesis comprises three empirical studies that investigate the effects of UK fiscal spending policy on aggregate demand and household consumption. In the first study, I introduce a newly constructed dataset of fiscal forecasts from the National Institute Economic Review (NIER) dating back to 1964. The dataset fills a gap in the availability of UK government spending data, enabling analyses into the conditional factors driving variations in the effectiveness of UK fiscal spending policy over time and by spending policy tool. Accordingly, in the second study I explore the effects of government consumption and investment shocks on economic activity in recessionary and non-recessionary periods. Existing evidence on state-dependent fiscal spending multipliers is mixed, and few studies analyse the effects of government investment. I document significant variations in UK fiscal multipliers across states, but only for government investment shocks. This is driven by higher private investment, which increases substantially in response to an improvement in business confidence in recessions. In the final study, administrative data are used alongside the spending shocks to examine the role of liquidity constraints in the responses of household consumption to government final consumption expenditure changes. Consistent with the notion that marginal propensities to consume out of transitory income shocks differ systematically across households based on their housing tenure status, I find that the non-durable and durable consumption responses of mortgagors are greater than outright owners. However, it is low-income, not high-income, mortgagors who respond significantly to a government spending shock. Alongside evidence that the consumption responses of mortgagors are greater when mortgage rates are higher and when faced with unexpectedly low government spending, the results suggest that UK government spending policy transmits through the economy by alleviating the financial constraints of households.
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