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This paper examines the macroeconomic effects of different timing and composition of fiscal adjustment in the United Kingdom using the IMF’s Global Fiscal Model. Early consolidation dampens aggregate demand in the short term, but increases output in the long term as smaller primary surpluses are needed as a result of lower interest payments. Reducing government transfers or current government spending provides larger gains than increasing taxes, in particular compared to raising corporate or personal income taxes. We show that these conclusions are robust under alternative behavioral assumptions and parameterizations. A reduction in global saving would make early consolidation more urgent from both cyclical and long-term perspectives. Finally, we show that tax reform aimed at increasing incentives to save could provide support to fiscal consolidation measures.

Electronic books. -- local. --- Finance, Public -- Great Britain -- Econometric models. --- Fiscal policy -- Great Britain -- Econometric models. --- Political Science --- Law, Politics & Government --- Public Finance --- Fiscal policy --- Finance, Public --- Econometric models. --- Cameralistics --- Public finance --- Tax policy --- Taxation --- Government policy --- Currency question --- Economic policy --- Public finances --- Macroeconomics --- Personal Finance -Taxation --- Personal Income and Other Nonbusiness Taxes and Subsidies --- Debt --- Debt Management --- Sovereign Debt --- Fiscal Policy --- National Government Expenditures and Related Policies: General --- Public finance & taxation --- Welfare & benefit systems --- Public debt --- Fiscal consolidation --- Labor taxes --- Personal income tax --- Expenditure --- Income tax --- Debts, Public --- Expenditures, Public --- United Kingdom