Morten Ravn's picture
Affiliation: 
University College London
Credentials: 
Professor of economics
Head of Department

Voting history

2014 Autumn Statement

Question 1: Do you agree that the scale of this planned reduction in total managed expenditure is credible?

Answer:
Disagree
Confidence level:
Very confident
Comment:
It is only credible to the extent that welfare expenses and other sources of income transfers fall more than expected which would require either a much larger growth in the economy than expected or political willingness to cut transfers to low-income households. The latter is politically difficult not the least because pensioners would be hard to protect from such cuts. Thus, in the absence thereof, either spending in other government departments would have to fall, the stabilization of public debt would take much longer or tax revenues would have to increase. A large cut in government departments is difficult given that the NHS is being ring fenced thereby forcing other departments - such as education - to be cut much deeper. At the end of the day, it is most like that the outcome will be a balanced mix of all these options unless the economy recovers even more than expected (therefore producing a larger than expected rise in tax revenues and a larger than expected fall in income transfers).

Devolving Income Tax Powers within the UK

Question 2: Do you agree that that there is a clear economic case for establishing "English votes for English laws" with the same tax and spending powers as the Scottish Parliament?

Answer:
Disagree
Confidence level:
Extremely confident
Comment:
It would seem logical to have the English Votes for English Laws if there is full devolution to the Scottish Parliament. But in the absence thereof, I see no reason for taking this step. It would potentially lead to a fragmented fiscal union which I do not see as a good outcome.

Question 1: Do you agree that the economic benefits of devolving full income tax powers to the Scottish Parliament and Welsh Assembly outweigh the possible costs?

Answer:
Disagree
Confidence level:
Extremely confident
Comment:
I disagree with FULLY devolving income tax powers to the Scottish Parliament and the Welsh assembly. I agree that some fiscal federalism is a good idea. Here is where I come from: Devolving fiscal authority definitely have advantages in terms of bringing spending and taxing powers closer to the local communities thereby catering better for local preferences, needs, and building better on local knowledge. Against this are aspects such as the loss of a fiscal instrument for macroeconomic stabilization for the central authority, the issue of externalities, and how to deal with regional disparities. A simple principle in terms of devolving tax power would be to decentralize the taxation of the least mobile and least elastic sources of income which one would think relates to consumption and income taxes. However, full devolution of income taxation, I believe, would be sub-optimal because of the large income differences across UK regions. Welsh income per capita is much below the UK level. With a fully decentralized system it is unclear how transfers could be sustained in the longer run. Moreover, although full devolution could help increasing the efficiency of the fiscal system within regions, the ensuing tax competition between local authorities could have negative side effects in terms of lower revenues which would have to be felt on the spending side (such as putting pressure on cutting health and education bills). Thus, I think a partial devolution would be a preferred outcome.

Secular Stagnation

Question 2: Do you think that current structural and fiscal policies should place a considerably greater emphasis on pushing the natural rate into positive territory?

Answer:
Neither agree nor disagree
Confidence level:
Very confident
Comment:
As I mentioned above, I am not in full agreement with the definition of the secular stagnation hypothesis and I think one needs to think beyond real interest rates. To the extent that secular stagnation refers to persistent episodes of levels of activity below potential, I think that monetary and fiscal policy may be important to the extent that they impact on incentives to save but structural reform is perhaps even more important. Unemployment in Greece and Spain are close to 25 percent, youth unemployment is at 50 percent, and I believe it would be foolish to think that this can be addressed by standard stabilization policies only (or even mainly).

Question 1: Do you agree- making your own definition of secular stagnation clear if you disagree with that offered here- that it is more likely than not that the advanced Western economies have entered into a period of secular stagnation?

Answer:
Agree
Confidence level:
Very confident
Comment:
I prefer to refer to secular stagnation simply as a very long recession. By that token, many advanced economies find themselves in a secular stagnation. There ARE exceptions, though: Countries such as Germany and Sweden are back on their pre-2007 trends (and employment has even risen in Germany relative to 2007). Economies such as US and the UK are recovering but are still well below the levels of activity that would have predicted by their pre-crisis trends. Even worse, countries such as Greece, Italy and Spain are witnessing falling levels of activity and have essentially lost 10-15 years of growth. But if you look at other indicators included in the definition above, the picture is very mixed. The level of unemployment is still rising in Southern Europe but is declining in the US. Real interest rates are quite different across countries and demand seem to recovering in some economies but not in others. I think what is missing is that the incentive to save (and invest) depend not only on real interest rates but also on perceived risk which induces precautionary savings thereby depressing consumption and to positive option values of delaying investment projects. Risk, for example, may still be perceived to be high in the US because the duration of unemployment has remained high despite the level of unemployment declining. Thus, I agree to the extent that the definition refers to a long and severe recession while the other parts of the definition are questionable.

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