Long-term effects of fiscal policy on the size and distribution of the pie in the UK

Fiscal policy has traditionally been considered an effective instrument to smooth cyclical behaviour and to ameliorate inequality through redistribution. Yet, we know relatively little about the macroeconomic effects of distinct fiscal policies. Moreover, since the pro-growth effects resulting from a reduction in public expenditure found by Giavazzi and Pagano (1990, 1996), referred to in the literature as ‘non-Keynesian effects’, there is no consensus among economists as to the magnitude and even sign of these effects (Capet 2004; Perotti 2005). ¹