No Plan B: But is There a ‘Third Way'?

Abstract

AbstractThis paper reviews the argument for a slowdown in the fiscal consolidation policy of the UK government. It reviews the existing literature and the evidence of the interwar period in the UK where a recovery occurred without a relaxation of the tight fiscal regime of the period. It argues that even in a zero‐lower‐bound, the evidence for a plan B is weak. Given that there may have been significant capacity destruction, the paper suggests a third way that calls for a supply‐side framework that sets the condition for an improvement in long‐term growth and productivity.