The impact of fiscal policy shocks in the United Kingdom: an empirical investigation

Abstract

This paper empirically examines the impact of shocks to government spending and government revenues on main macroeconomic variables in the UK. We apply the methodology of Mountford and Uhlig (2009) to analyze the effectiveness of fiscal policy in the UK and compare our results with the literature on fiscal policy in the US. Following a government spending shock in the UK, there is an immediate increase in output, private investment and real wages. Regarding the government revenue shock, it is contradictory in the US. In the UK, however, private investment and GDP react positively to this shock.