Coping with uncertainty: policy responses of central and local government authorities in the UK

 

Research seminar by Catalin Dragomirescu-Caina, Foundation for European Progressive Studies (FEPS)

Abstract: This paper examines the impact of uncertainty on central and local government spending in U.K. More specifically, we investigate the shifts in the spending power of the two government authority levels in reaction to economic policy uncertainty and stock market volatility. We empirically describe the trade-off between providing a public good, such as economic policy stability, and addressing regional dispersion in labour market outcomes, a proxy for local preference heterogeneity. Our main findings indicate a general tendency towards centralization of public spending in reaction to economic policy uncertainty but no significant policy reaction to stock market volatility. At a disaggregated level, both central and local government authorities prefer paying higher social transfers in response to uncertainty, but for local budgets, this is probably compensated by lower intermediate consumption, resulting in a neutral effect.

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Organising committee

Greenwich Political Economy Research Centre (GPERC)

Foundation for European Progresive Studies (FEPS)

Department of International Business and Economics, University of Greenwich