THE REGIONAL IMPLICATIONS OF MACROECONOMIC POLICY

Abstract

This article examines the relative impact of changes in UK fiscal and monetary policy on the economies of the UK regions. This is done by first considering the relative importance of fiscal flows and balances to the UK regions and then assessing their sensitivity to fiscal policy changes. Second, the impact of monetary policy on the regions is considered in four cases. These are: direct effects on spending, exchange-rate effects, income effects, and asset price effects. The conclusions are that different policy levers have markedly different regional implications, with southern regions being more sensitive to changes in income taxes and government consumption and investment, while northern regions are more sensitive to changes in national insurance and transfer payments. All regions have become more sensitive to interest-rate changes over the past decade, but regions in the south are considerably more vulnerable, particularly to any knock-on effect on house prices. Copyright 1995 by Oxford University Press.