IMF openly criticises UK government tax plans

I’m not sure why the UK government is increasing the money supply through fiscal policy while inflation is rising. We did the same thing last year and now our interest rates keep going up. We had a lot of stock buybacks during the pandemic. There’s nowhere for that money to go except in wealthy pockets. That won’t help people get to work or cope with inflation.

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My favourite thing about my Economics degree is how much it makes me despair.

This is correct in terms of it being fundamentally unsound policy; it’s possible that you might get a bit of a sugar rush injection into the economy, but it is both unlikely and the effect will be extremely small vs the problems that this can cause. Added to this, the view that is held on how Economics works here is very 101/orthodox and ignores the fact that:

The marginal propensity to consume (MPC) is lower at the higher wealth quintiles. For low-wealth households, the MPC is 10 times larger than it is for wealthy households.

Source - one of many.

I am no giant fan of the IMF, but the magnitude of the point shifts on Gov’t bond yields are cause for concern. There is an LSE paper referenced further down the article which I have read before, which is very instructive when it comes to this specific move. 18 OECD countries / five decades and…

We find that major reforms reducing taxes on the rich lead to higher income inequality as
measured by the top 1% share of pre-tax national income. The effect remains stable in the
medium term. In contrast, such reforms do not have any significant effect on economic growth
and unemployment.


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