The Importance of Elections for UK Economic Activity

Saturday, March 28, 2015

Question 1: Do you agree that the austerity policies of the coalition government have had a positive effect on aggregate economic activity (employment and GDP) in the UK?

Question 2: Do you agree that the outcome of the general election will have non-trivial consequences for aggregate economic activity (employment and GDP)?

Summary

In the week before the dissolution of Parliament, the Centre for Macroeconomics asked its panel of experts about the effects of governments on aggregate economic activity.

The great majority of respondents disagree with the proposition that the coalition government’s austerity policies have had a positive effect on aggregate economic activity. And an overwhelming majority of respondents agree that the outcome of the general election (assuming a stable government is formed) will have non-trivial consequences for economic activity.

The policies of the coalition government

Question 1: Do you agree that the austerity policies of the coalition government have had a positive effect on aggregate economic activity (employment and GDP) in the UK?

Summary of responses

The great majority disagree or disagree strongly with the proposition. Of the 50 economists in the survey, 33 responded: two thirds disagree or strongly disagree that coalition policies have had a positive effect on aggregate economic activity. To be precise, no one strongly agrees, 15% agree, 18% neither agree nor disagree, 33% disagree and 33% strongly disagree. Ignoring those who sat on the fence, 19% agree and 81% disagree with the proposition. This ratio is unaffected by confidence weighting.

Many of the respondents begin by noting that it is far from clear what the counterfactual is and that austerity policies were significantly loosened in the second half of the term.

Nevertheless, the clear majority of our respondents disagree or strongly disagree with the proposition. Simon Wren-Lewis (Oxford) even goes so far as to ask whether ‘this is a joke’ before pointing out that by using numbers from the Office for Budget Responsibility (OBR), one can ‘derive a lowest estimate’ for the cumulative loss in activity of 5% of GDP (or £1,500 per capita) and ‘a best guess could be nearer to 10% of GDP.’ Ethan Ilzetzki (London School of Economics, LSE) strongly disagrees, noting that ‘interest rates were at historical low levels and there was no indication that the debt burden was a drag on growth.’ John Van Reenen (LSE) also strongly disagrees, although he says that austerity was correctly relaxed after 2011-12 as the ‘nascent recovery stuttered.’ He and Tony Yates (Bristol) both mention the zero lower bound on interest rates as an argument for less austerity.

Some of those who neither agree nor disagree say that austerity may have had an initial positive effect in preventing a loss in confidence in UK economic policy. Giancarlo Corsetti (Cambridge) notes that a key achievement had been to insulate the country from ‘the most damaging type of financial crisis – the loss of market confidence on “sovereign signature”.’ Sir Charles Bean (LSE) makes a similar point: that the motivation for consolidation was to ‘reduce the likelihood of a loss of market confidence… which, had it occurred... would have necessitated a much larger consolidation.’ John Driffill (Birkbeck) disagrees with the proposition and suggests that ‘markets might have found less austere policies equally credible.’

Of those who agree that there has been a positive effect on activity, Nick Oulton (LSE) suggests that austerity has been ‘greatly exaggerated’ as real current expenditure by general government has been higher in each year between 2010 and 2013 and general government investment is higher than it was in most of the years under the preceding government. Patrick Minford (Cardiff) also agrees, noting that the coalition has set a definite direction towards deficit reduction ‘without moving so rapidly to destabilise the economy.’ Jagjit Chadha (Kent) suggests that the coalition’s fiscal policies are better thought of as ‘sound money’ as deficits have continued to fall.

After the general election, assuming a stable government is formed (perhaps in coalition)

Question 2: Do you agree that the outcome of the general election will have non-trivial consequences for aggregate economic activity (employment and GDP)?

Summary of responses

An overwhelming majority of respondents agree or strongly agree that the outcome of the general election will have non-trivial consequences for aggregate economic activity. Of the 33 economists who expressed a view, 77% either agree or strongly agree with the proposition, and excluding those who were neither agree nor disagree, the majority rises to 93%. If the responses are weighted by confidence, and excluding those who sat on the fence, the share of those who agree or strongly agree edges higher to 94%.

Of the many respondents who agree or strongly agree with the proposition, many cite differences in fiscal policy as the main reason. David Bell (Stirling) agrees, suggesting that the difference would come down to ‘which party is making the right judgement call on the speed of deficit reduction.’ Michael McMahon (Warwick) agrees, saying that the election would ‘determine the balance between tax increases and expenditure cuts. Morten Ravn (University College London, UCL) also agrees, noting that the difference between the main parties looks likely to be tax rises versus spending cuts: ‘there is ample empirical evidence that shows that differences... matter for the economy.’ Christopher Martin (Bath) strongly agrees and estimates that the difference in spending plans is ‘about £40 billion per year’ and that even most hard-core anti-Keynesian would argue this has ‘non-trivial consequences.’

Two survey respondents disagree that the outcome will have non-trivial consequences for activity, but neither offers an explanation. Of those who neither agree nor disagree, Martin Ellison (Oxford) notes that the difference between party platforms is not huge in respect to their commitment to austerity and Ethan Ilzetzki (LSE) suggests that ‘no party has put forth proposals that are a magic bullet for the UK's long-term economic challenges.’ Charles Nolan (Glasgow) suggests that it is very difficult to know what the major parties are really planning and that ‘the lack of information is worrisome.’

It is notable that Wouter Den Haan (LSE), Ethan Ilzetzki (LSE), John Driffill (Birkbeck), Simon Wren-Lewis (Oxford), David Cobham (Heriot-Watt) and Costas Milas (Liverpool) all highlight important economic consequences that may arise from an EU referendum in the next Parliament.

How the experts responded

Austerity and Economics Activity

Participant	Answer	Confidence level	Comment
Wouter Den Haan London School of Economics	Neither agree nor disagree	Not confident at all	I think that the macroeconomics profession doesn't have the evidence to answer this question. Personally, I would have chosen for less austerity and in particular would have taken advantage of low interest rates to invest more in health, education, infrastructure, and the environment. But it is not completely implausible that the austerity policies of the coalition government prevented confidence from deteriorating further and by doing so had a positive effect on investment and employment.
Giancarlo Corsetti University of Cambridge	Neither agree nor disagree	Confident	A key achievement of the UK economic policy in the aftermath of the crisis has been the insulation of the country from the most damaging type of financial crisis---the loss of market confidence on “sovereign signature”. The UK was at the center of the financial storm in 2007-2009. The Bank of England intervened massively---showing markets its determination in guaranteeing orderly conditions in UK financial markets. The fall in the exchange rate made sure that all the increase in risk of UK denominated assets was reflected upfront in their price in international portfolios. In this context, the announcement (without the implementation) of tough fiscal measures had the consequence of further reassuring investors---while de facto automatic stabilizers were working and opening a large current account deficit. Words were tough, deeds were OK. The problem in the UK, like elsewhere, was that initially policymakers operated on expectations of a much shorter crisis. So talking (again just talking) tough measures two-three years down the line seemed reasonable. The crisis turned out to be much longer (alas, wishful ignorance, as, a part from the Japanese experience, Andre Meier at the IMF had already shown the type of macro outlook to expect). So over the years, government had the problem of maintaining promises that ex post were not appropriate. To put it simply. There is a unfinished, dangerous deleveraging process, which is particularly difficult in the Eurozone. The UK so far has surfed the crisis by enjoying inflow of physical and human capital. It is now facing the aftershock of a severe European slowdown. Cash-generating austerity measures are of no use in these circumstances. Rigorous fiscal policy needs to focus on sustainability, which is not only health care and pension but also infrastructure and services. On balance, it would have been useful to sustain some spending programme, with an eye on its medium to long-run effect.
David Bell University of Stirling	Disagree	Not confident	Really difficult period to assess. The austerity programme itself varied in intensity and employment has done spectacularly well given that the downturn in output exceeded all recorded previous instances.
Jagjit Chadha National Institute of Economic and Social Research	Agree	Very confident	I really do not like the term austerity, as I see these policies have essentially been those of "sound money": deficits have continued. But the final level of aggregate demand was really being set by the BoE with QE. Thus even looser fiscal policy might have meant less room for QE and with as a result more debt to sell to the private sector, at a risky juncture, long term interest rates may have reacted in way to offset much of the impact and ultimately delay the recovery. In the end it was a judgement about the appropriate policy mix and it is hard not to think that relatively tight fiscal policy - at least in terms of plans about the future level of public debt to GDP - and loose monetary policy was an appropriate choice.
Mike Elsby University of Edinburgh	Disagree	Not confident
Gianluca Benigno London School of Economics	Disagree	Not confident	it is hard to disentangle the effects of an individual policy measure. The coalition government run a fiscal contraction in 2010 and 2011 and then reduced the pace of the fiscal contraction from 2012. The reduction in the pace of the contraction, along with expansionary monetary policy and international factors that have kept interest rates low in the UK, could explain the recent recovery of the UK economy and its better relative performance.
Ethan Ilzetzki London School of Economics	Strongly Disagree	Extremely confident	There was no evidence of any need for austerity when the UK embarked on this path. Interest rates were at historical lows and there was no indication that the UK debt burden was a drag on growth. The UK's recent stronger economic performance perfectly coincided with a recovery elsewhere in the world, including in the US which followed a path of stimulus, not austerity. The recovery was also in the context of oil price that were very low.
Richard Dennis University of Glasgow	Disagree	Confident
Sir Charles Bean London School of Economics	Neither agree nor disagree	Very confident	It all depends on the counterfactual! While fiscal consolidations can have an expansionary effect on demand (e.g. the mid-1980s consolidation in Denmark) that is only likely to be the case when market participants have already lost confidence in a government's economic policies. The UK consolidation was never undertaken in the belief that it would boost demand directly but rather that it would reduce the likelihood of a loss of market confidence in the UK government's economic policies, which - had it occurred - would have necessitated a much sharper consolidation. So it all depends on whether slower consolidation would have led to a loss in market confidence or not.
John VanReenen London School of Economics	Strongly Disagree	Very confident	UK GDP is about 15% below where we would have expected on pre-crisis trends. Employment rates back at pre-crisis levels at are 73%, but this is largely due to real wage falls of 8-10% - unprecedented in post-war recessions - which has kept labour costs low. As I discuss in my briefing paper http://cep.lse.ac.uk/pubs/download/EA020.pdf it is now clear that fiscal consolidation was introduced too early into the UK especially in the 2010-11 and 2011-12 period. The cut of public investment by 40% over this time period was the opposite of sensible macro-economics. The OBR estimate that UK GDP was reduced by 2% due to this austerity. This was bad enough, but is likely to be an underestimate of the economic damage as more recent econometric evidence by the IMF and (e.g.) Jorda and Taylor (2013) have found that fiscal multipliers are much higher in severe downturns when interest rates are at the zero lower bound. After 2011-12 austerity was relaxed as the nascent recovery stuttered, and this was correct. Had the Chancellor still tried to eliminate the deficit by the end of this Parliament as originally planned in his 2010 Budget, employment and GDP would be much lower. So the answer is that premature austerity has damaged UK welfare and as I and others argued at the time, delaying consolidation would have left the UK in a much stronger position than it is today. http://cep.lse.ac.uk/pubs/download/special/cepsp27.pdf We face the prospect of repeating this mistake over the next 5 years. Attempting to reach a surplus on the total budget deficit without any tax increases (as in the most recent Budget) implies cuts to public service spending (resource DEL) in 2016-17 and 2017-18 over over 5%: higher than anything else seen in the last parliament. It would be better to have a smoother path of adjustment (spending bounces back in 2019-20 on a "rollercoaster" as correctly described bu the OBR); to treat capital investment differently in the fiscal plan (in order to deal with the UK's long-term investment problems as highlighted by the LSE Growth Commission); and to mix tax rises with spending cuts in achieving balance on the current budget. See http://blogs.lse.ac.uk/politicsandpolicy/budget-2015-what-the-chancellor-did-and-didnt-say/ for my post-Budget analysis
Panicos Demetriades University of Leicester	Neither agree nor disagree	Very confident	We really don't have a counter-factual, we don't know what GDP and employment would have been had we had less or no austerity. Austerity reduces aggregate demand by more than it's usually assumed, as the value of the fiscal multipliers is larger than has typically been predicted, as has also been recently recognised by the IMF. This could mean that the reduction in GDP it causes is larger than the reduction in the public debt, making debt sustainability more of an issue. Also, excessive austerity can impair long run growth, by eroding the quality of a country's physical infrastructure and human capital. These are long run effects but there's plenty of research, including some of my own published in the Economic Journal in 2000, which shows that the returns to public capital are quite high, once the indict effects on the productivity of private capital are taken into account.
Jim Malley University of Glasgow	Disagree	Confident
Martin Ellison University of Oxford	Strongly Disagree	Very confident	The idea that fiscal contractions can be expansionary has largely been discredited. The work by Alesina, Favero and Giavazzi shows that it matters whether austerity comes about through rises in taxes or cuts in expenditure, but the evidence is that spending-based consolidations are at best neutral and that taxation-based consolidations are contractionary. There is scant support for spending-based austerity having a positive effect on output, and clear indications that tax-based austerity does not.
Michael McMahon University of Oxford	Disagree	Confident	The fact that the pursued austerity have reduced aggregate economic activity is not to say that the UK is not overall better having pursued the policies. The counterfactual can not simply be what would have happened without any austerity. Perhaps the right comparison is what would have happened under an alternative government. In this regard, the actual plans pursued are quite close to what labour had proposed as the scale and timing of deficit reduction (though the coalition revised the plans in a major way in 2012 and it is likely that a labour or other coalition government would also have changed their plans).
Andrew Mountford Royal Holloway	Strongly Disagree	Extremely confident	The coalition's austerity policies have had a significantly negative effect on the UK economy relative both to the best potential policy and to the lower bar of what alternative governments would have done. The biggest shortcoming in the coalition is their failure to invest in public capital while being able to borrow at close to 0% interest. The productivity of the UK both now and in the future is consequently significantly below potential. What are these public capital projects? Well one can argue about which gives most bang for buck (I would argue for education, science and public housing) but when interest rates are 0% any project only needs to cover its costs and surely there is no shortage of projects that do this. For an accessible discussion of some public investments that would increase future growth see http://blogs.lse.ac.uk/politicsandpolicy/productivity-the-elephant-in-the-room Another big problem is the housing crisis which the coalition has exacerbated. Their failure to invest is in my view linked to their austerity agenda although their failure to tax housing may be something separate. Too much of UK savings is currently spent on housing and real estate lending is far too large a proportion of UK banks' balance sheets. This means that not enough is being lent to the productive economy which again reduces growth. This also has a direct result on people's well being as their living costs are higher than they need be. House prices are too high and should be taxed much more with the proceeds spent on a huge investment in public housing. See The Economist's recent article for the scale of the problem http://www.economist.com/news/britain/21645735-david-camerons-housing-policies-are-all-posturing-weak-foundations
Charles Nolan University of Glasgow	Disagree	Confident	There is probably little real disagreement that fiscal retrenchment has been necessary: high government debt can leave economies vulnerable. The issue is whether austerity has been overly rapid and too damaging to public investment at a time when the UK government can borrow cheaply.
Richard Portes London Business School and CEPR	Strongly Disagree	Extremely confident	The data are clear. The recovery is aborted immediately after austerity begins, then revival when it is (semi-covertly) relaxed.
John Driffill Birkbeck College, University of London	Disagree	Confident	As compared with what? Spending and tax plans that made no effort to control the national debt might have been worse, but plans that were slightly less austere might have been slightly better, in terms of stimulating more employment and GDP over the last few years. The coalition policies have convinced the financial markets that the public debt would be sustainable, and the government's borrowing costs have fallen to very low levels. The markets might have found less austere policies equally credible.
Alan Sutherland University of St. Andrews	Disagree	Confident
Patrick Minford Cardiff Business School	Agree	Confident	The coalition government has managed to set a definite direction towards deficit reduction without moving so rapidly as to destabilise the economy. Essentially it has halved the deficit/GDP ratio in this Parliament. In spite of this correction and the reduction in public sector jobs employment has grown strongly and recovery has been established. The correction needs to go further- about the same again- to bring fiscal affairs back under proper control. Interest rates have been negative in real terms and are likely to continue to remain low. This has made it easier to delay the correction. The only risk in the delay of the correction compared with the original plans to have eliminated the deficit by now, is that an incoming government might refuse to complete the process. However, this risk is quite small.
David Cobham Heriot Watt University	Strongly Disagree	Very confident	No claim of expansionary fiscal contractions could possible be upheld in this case. Fiscal consolidation knocked the top off a recovery started by the combination of fiscal and monetary expansion under Labour, it took another two years (and a significant prolonging of the consilidation timetable) before any more recovery emerged, and in the meantime the government had to seek desperately for more methods of monetary expansion.
Paolo Surico London Business School	Disagree	Confident	While austerity measures may have long-run benefits (because they may encourage structural reforms), there is little empirical evidence to support the hypothesis of expansionary austerity in the short-run. But the choice of cutting government spending more than increasing taxes (if any) the coalition government has probabibly minimized the negative impact of austerity in the short-run.
Nicholas Oulton London School of Economics	Agree	Very confident	The fact of the matter is that "austerity" has been greatly exaggerated. In every year from 2010 to 2013 real current expenditure on goods and services by general (local plus central) government has been higher than in any previous year. In 2013 it was 5% higher than in the last year of the boom, 2007. The much smaller total of investment by general government was cut a bit after the coalition came to power but is now much higher than it was during most of the Labour years. The budget deficit is a good deal higher than in anti-austerity France. Of course one can always argue that the government should have followed a still more expansionary fiscal policy (its monetary and exchange rate policies were also expansionary). But at some point any government would have had to get a grip on the deficit and the rising debt-GDP ratio, unless one believes that debts don't matter since they can always be inflated away. The financial crisis dealt a huge blow to the UK economy. But unemployment is now pretty low and still falling while employment is up.Productivity, for reasons not yet understood, has not recovered. But it is not clear how this would have been improved by additional government spending.
Morten Ravn University College London	Neither agree nor disagree	Very confident	I am not sure that the question is precise enough: I think the austerity policies may have triggered negative short run effects on activity but that the positive medium to long term effects are starting to show up now. A standard tax smoothing argument would suggest that the optimal response to a temporary shock to government spending - such as what followed the financial crisis - should be accompanied by a budget deficit. The coalition government chose to adjust government finances rather quickly. I think this might have had negative consequences in the shorter run but that the positive effects (relative to allowing for a larger increase in government debt and a later stabilization) are now setting in. It would have been useful perhaps to have considered a larger palette of policies (including money finance implemented for example through an adjustment of the inflation target) and a closer analysis of the extent to which the financial crisis may have implied semi-permanent effects on the UK economy. However, to return to the question: The austerity policies probably have had negative effects in the short run but positive effects over longer horizons.
Francesco Caselli London School of Economics	Strongly Disagree	Confident	The UK took much longer than the USA to get back to pre-recession levels of economic activity. Austerity is the culprit.
Costas Milas University of Liverpool	Agree	Confident	IMF World economic outlook data suggest that UK GDP (based on Purchasing Power Parity per capita GDP; current international dollar) increased by 14.5% over 2010-2015. This is less than the 16% increase recorded for the G7 group as a whole but quite a substantial increase if one considers that the UK budget deficit is expected to shrink from 10% of GDP in 2010 to 4.1% of GDP in 2015 (IMF data).
Tony Yates University of Birmingham	Disagree	Confident	I agreed with the initial plan, but thought it should have been relaxed sooner than it was, given that it was soon clear we would not be 'like Greece'; and that some of the stimulatory effect of the eventual relaxation was lost because the Coalition covered up, for political reasons, the fact that they were opting for plan B. More recently, as inflation drifted below target, I think the Coalition should have relaxed fiscal policy further to help out potentially ineffecive monetary policy, at least as a precautionary response, given the asymmetric risks posed by the zero lower bound.
David Smith Sunday Times	Agree	Very confident	The simple answer would be that austerity has reduced growth but we cannot know the counterfactual, which is that a failure to reduce the deficit could have had serious consequences. Critics of austerity tend to underestimate the extent to which Britain was close to a full-blown fiscal crisis in 2010.
Ray Barrell Brunel University London	Strongly Disagree	Extremely confident	Austerity policies have reduced GDP below where it would have otherwise have been over the last five years. Fiscal contractions are almost always negative in their impact on GDP in the short to medium term. The short term multiplier from a spending led contraction is unlikely to be much above a half. The impacts of austerity are unlikely to have been large in the last three years. The effects of lower interest and exchange rates will not have offset the initial negative impact of austerity on demand. Deficit reduction is necessary, but the pace could have been slower, and GDP would have been higher, if not by much. There is no risk of default on UK government debt, and a ten per cent variation in the level of debt would leave interest rates unaffected.
Christopher Martin University of Bath	Strongly Disagree	Very confident	In 2010 George Osborne introduced austerity, arguing that the UK economy needed to be "re-balanced" away from consumption and government expenditure and towards higher investment and exports. This has not happened. Investment has fallen and the current account deficit as as high as ever. Over the past five years, productivity has fallen and real wages have stagnated. Many of the most vulnerable have become worse off but "welfare" spending has not fallen. The only positive is that the rise in unemployment was only modest.
Paul De Grauwe London School of Economics	Strongly Disagree	Confident
Michael Wickens Cardiff Business School & University of York	Neither agree nor disagree	Very confident	The short-run aim of the coalition was not to stimulate economic activity but to repair public finances and thereby create the conditions for higher economic growth in the longer term. They have been moderately successful in their short-term aim and are starting to achieve their longer-term aim.
Simon Wren-Lewis University of Oxford	Strongly Disagree	Extremely confident	This is a joke, right? The only interesting question is how much GDP has been lost as a result of austerity. Based on OBR numbers, you can derive a 'lowest estimate' cumulative GDP loss of 5% of GDP (that is about £1,500 for each adult and child). A best guess could be nearer 10% of GDP, although a lot depends on how monetary policy would have reacted. That loss has, somewhat unusually, been more evenly spread as a result of a substantial decline in real wages.

Impact of Next Government

Participant	Answer	Confidence level	Comment
Wouter Den Haan London School of Economics	Agree	Confident	I typically would disagree with such a question, since the differences between proposed policies become substantially smaller when you take into consideration the difficulties in implementing them. This time could be different. The possibility of a referendum on UK membership of the European Union could be the kind of thing that does have far reaching consequences and it may, thus, this election may turn out to be quite important.
Giancarlo Corsetti University of Cambridge	Agree	Confident	As a foreign observer, I answer this question drawing on the international experience. The answer is yes, and it will crucially depend on whether the new government, regardless of their tough or mild words during the electoral campaign, will exert the required realistic approach, based on sound empirical evidence. The UK has solid institutions providing important inputs to decision making. It would be useful to have a pledge, by all candidates, that they will make sure proper weight is given to their analyses.
David Bell University of Stirling	Agree	Confident	Which party is making the right judgement call on the speed of deficit reduction? A prori, a difficult call but one that is likely to have significant effects on overall economic activity.
Jagjit Chadha National Institute of Economic and Social Research	Agree	Very confident	If either of the main two parties form the government, then I would expect sound money policies to continue. But if the extremes end up having some undue influence or create a long period of uncertainty with the need for another election, then the hiatus may have the propensity to stall aspects of the recovery.
Mike Elsby University of Edinburgh	Disagree	Confident
Gianluca Benigno London School of Economics	Agree	Confident
Ethan Ilzetzki London School of Economics	Neither agree nor disagree	Not confident	My response is based on both political and economic factors. On the political side, my current expectation is of hung parliament. Whoever will govern will have difficulty in setting a clear agenda. From an economic perspective, no party has put forth proposals that are a magic bullet for the UK's long term economic challenges. Overall, the public tends to overstate the ability of governments to affect economic outcomes in the short run--except in some extreme cases. I do see a couple of downside risks. These include a referendum on the EU that creates economic uncertainty and populistic anti-imigration policies.
Richard Dennis University of Glasgow	Agree	Confident
Sir Charles Bean London School of Economics	Agree	Confident
John VanReenen London School of Economics	Agree	Confident
Panicos Demetriades University of Leicester	No opinion	Very confident
Jim Malley University of Glasgow	Disagree	Confident
Martin Ellison University of Oxford	Neither agree nor disagree	Confident	There is heightened uncertainty in the run up to the general election, which may continue for some time in the aftermath if the result is not clear or there are difficulties forming a new government. This will filter through to inflation and GDP to some extent, but of more importance is how much the new government is committed to fiscal austerity. The differences between party platforms are not huge in this respect, so the impact of the election on aggregate macroeconomic variables is likely to be muted.
Michael McMahon University of Oxford	Agree	Confident	I think the election winner will face a need for further austerity and the result will (broadly speaking) determine the balance between tax increases and expenditure cuts.
Andrew Mountford Royal Holloway	Strongly Agree	Extremely confident	The different parties have different attitudes to public investment. The low level of investment in the UK economy (both public and private) means that the productivity of the UK both now and in the future is significantly below potential. Any government that significantly increases public investment will have a significantly positive effect on the UK economy.
Charles Nolan University of Glasgow	Neither agree nor disagree	Not confident	It is very difficult to know what the major parties are really planning by way of tax rises and government expenditure cuts. The lack of information is worrisome.
Richard Portes London Business School and CEPR	Neither agree nor disagree	Not confident at all	This is not a well-specified question. It requires the respondent to forecast the outcome of the general election. Some outcomes would be unlikely to have non-trivial consequences for aggregate economic activity, others very likely. But as of writing (24 March) this is the most uncertain and indeed complex election in living memory - and perhaps much further back.
John Driffill Birkbeck College, University of London	Agree	Confident	There is a range of possible outcomes, each of which would be associated with different levels of activity, and, perhaps more importantly, different policies regarding the level of public spending and taxation, the amount of redistribution, Britain's continued membership of the EU. If, as seems likely, the two largest parties get a small share of the vote, say 30 percent each, and the smaller parties get the rest and win a reasonable number seats, the outcome may be a weak and fractious coalition. If UKIP and conservatives do well, that may increase the prospects of Britain leaving the EU in the coming years, which would have a negative effect on GDP, as well as being damaging to the UK socially and politically.
Sean Holly Cambridge University	Strongly Agree	Extremely confident
Alan Sutherland University of St. Andrews	Agree	Confident
Patrick Minford Cardiff Business School	Agree	Confident	Several coalition combinations could make difficulties for the economy- notably a Labour/SNP/Plaid/Green coalition which could refuse to continue the correction. This is the risk I mentioned in the first answer. Even if this coalition obtained power however I would expect some reasonable extent of correction, even if carried out mainly by general tax increases. The best outcome for the economy would be some sort of continuation of the current coalition, perhaps supported by UKIP and the DUP. The basic point is that public opinion in the UK would punish any government that put the economy at risk and therefore there will be strong pressure on any governing coalition to avoid damage to the economy either by inadequate correction or by aggressive tax increases.
David Cobham Heriot Watt University	Agree	Confident	There is a danger that a new Conservative government will just do the same again with fiscal consolidation, while a referendum on EU membership could have a chilling effect. A Labour government will at least largely avoid making that fiscal mistake, and would enable the UK to avoid a referendum.
Paolo Surico London Business School	Neither agree nor disagree	Not confident
Nicholas Oulton London School of Economics	Agree	Confident	The difference between what Labour and the Conservatives say that they will do about spending and deficits is now quite small. So if these plans are taken literally, it should not matter much which of the two major parties leads the next government. But this happy outcome could be put at risk if it is Labour in the lead since they will most likely need an accomodation with the SNP who are committed to big spending (at least in Scotland). Labour might also be tempted to follow the Gordon Brown strategy: fiscal restraint initially, then a surge in the size of the state after the 2020 election.
Morten Ravn University College London	Agree	Confident	This will of course depend crucially on the extent to the different parties will pursue different policies which is still unclear. But, it looks likely that Labour will raise taxes more than the Tories and that the Tories will allow for larger cuts in spending than Labour. There is ample empirical evidence that shows that such differences in policies matter for the economy. Of course, if the outcome is yet another coalition government involving LibDem, the outcome will be less sensitive to the relative performance of Labour and the Conservatives.
Francesco Caselli London School of Economics	Agree	Confident
Costas Milas University of Liverpool	Agree	Confident	This is conditional on whether a Brexit referendum takes place.A Brexit referendum will add to investor uncertainty, pushing up borrowing costs that companies face and therefore delay their investment decisions. As a result, economic growth will take a hit. So far, those arguing for a British exit have (in my view) failed to present an economically convincing argument of the advantages of leaving the EU. That said, the "in" camp, have also been reluctant to confidently articulate their case. With both camps equally unprepared to push forward their arguments, one is left wondering why we really need a referendum. An unnecessary distraction we could definitely do without.
Tony Yates University of Birmingham	Agree	Not confident	All parties have chosen to conceal the details of their plans - for fear that they give their opponents too much to attack, or us too much to disbelieve - so it is hard to know what they will do. Other uncertainties are how formal or informal Coalition deals will work out. And the fact that just as with the last govt, plans may not be stuck to.
David Smith Sunday Times	Agree	Very confident	The fiscal policy differences between the parties have narrowed but still exist and there are also important supply-side differences. The outcome of the election could give us an interesting test of the long-term impact of higher taxation and greater government intervention on growth.
Ray Barrell Brunel University London	Agree	Extremely confident	The outcome of the general election will have an effect on GDP. The potential coalitions will have markedly different debt reduction and spending policies. A Labour dominated coalition will have higher spending on infrastructure and slower debt reduction than a Conservative dominated coalition. A Labour dominated coalition is likely to see higher growth and lower unemployment in the first three years of the parliament. A Labour led coalition may see growth ¼ to ½ percent a year higher for three years, closing the output gap more quickly than would otherwise happen.
Christopher Martin University of Bath	Strongly Agree	Very confident	The difference between current Conservative and Labour spending plans is about £40 billion per year by the end of the next Parliament. On the most hard-core anti-Keynesian would argue that £40 billion a year has "non-trivial consequences". But the real issue is which party would best address the UK's long-standing economic weaknesses: inadequate infrastructure, insufficient investment, poor management and a lack of skills, factors which have combined over the years to give a dismal record on productivity. There is enough common ground in British politics for a serious attempt to put right these historical weaknesses, but little sign of any major party being willing to move out of their comfort zones in order to do this.
Paul De Grauwe London School of Economics	Agree	Confident
Michael Wickens Cardiff Business School & University of York	Strongly Agree	Extremely confident	The election could drastically alter macroeconomic policy in the UK, and for the worse. Given the closeness of the likely outcome of the election, the Labour Party's denial of their role in ruining the public finances prior to 2010, their continued focus on increasing public expenditures and the likelihood of needing a working arrangement with the even more spendthrift SNP, the prospects for the UK are very precarious - almost on a knife-edge.
Simon Wren-Lewis University of Oxford	Strongly Agree	Very confident	Additional austerity will have some negative impact on GDP, as recent analysis in the National Institute Economic Review suggests, unless monetary policy is very active. The real danger is if some significant negative shock hits the UK. In that case interest rates will be forced to their (new) lower bound, and the negative impact of additional austerity could be much greater, as was the case in 2010-2011. The election could also have a significant impact on activity because of the proposed EU referendum. We have little idea on how much investment might be postponed because of this, but it could be significant in macro terms.

How the experts responded

Austerity and Economics Activity

Impact of Next Government

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