Aggregate fiscal policy under the Labour government, 1997–2010

This paper explores the Labour government’s fiscal policy performance at the macroeconomic level. This analysis is in two halves. The first covers the period up until the Great Recession, which involved a single policy regime subject to two simple fiscal rules. After discussing the theoretical and practical issues raised by these rules, I examine the extent to which they were followed by the government, and whether subsequent developments highlighted shortcomings of these rules. To what extent was the eventual failure of these rules down to over-optimistic forecasts or unforeseeable events? The second half involves the response to the Great Recession and the abandonment of the fiscal rules. Copyright 2013, Oxford University Press.