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fiscal policy

discuss whether it is better for governments to have fiscal rules or allow treasury ministers discretion in fiscal policy. 20 marks

Any ideas/help?

Reply 1

MagicNMedicine

Well to start you off, think about the problems with allowing governments full control of fiscal policy. If you are an elected Chancellor, then you might be able to do some popular things by running a fiscal deficit, eg giving tax cuts and investment in public services. That means you get re-elected a second time. The problems with a fiscal deficit don't tend to manifest themselves immediately. After your second term you might go off to the House of Lords and/or to your job as a consultant with an Investment Bank and earn much more than you did as Chancellor, whilst your successor is now seriously constrained because he has to deal with the higher interest payments from an increased debt burden.

So there is an incentive for governments who need to seek re-election, to run up a fiscal deficit, knowing that probably they won't face adverse consequences from the deficit, their successors will.

That's just one argument, to start you off.