**FAQs**
**1. What are fiscal multipliers?**
Fiscal multipliers measure the impact of government spending on the gross domestic product (GDP). They are essential in economic forecasting as they help predict the effects of public investment on the overall economy.
**2. How does the current UK fiscal forecasting model limit effective government policy?**
The current UK fiscal forecasting model relies on rigid fiscal multiplier assumptions, which constrain the perceived benefits of public investment. This static approach restricts targeted government intervention in critical areas like public services, green infrastructure, and social equity, ultimately favoring fiscal restraint over long-term growth.
**3. What is the proposed “bucket approach” to fiscal multipliers?**
The “bucket approach” categorizes policies based on specific characteristics that influence multiplier effects, such as stimulating consumption, creating demand in industries, and encouraging private investment. Policies are grouped into multiplier “buckets” based on their estimated ranges and economic context, allowing for adjustments to reflect current economic conditions.
**4. How can the bucket approach improve fiscal forecasting and public investment?**
By providing a more flexible and context-sensitive model for fiscal multipliers, the bucket approach enables more informed public debate, increases transparency, and allows for greater fiscal space for public investment. It aligns fiscal planning with broader social and environmental goals and helps manage uncertainty more effectively.
**Conclusion**
The current UK fiscal forecasting model’s reliance on rigid fiscal multiplier assumptions limits the effectiveness of government policy and hinders long-term growth and investment in essential areas. The proposed “bucket approach” to fiscal multipliers offers a more flexible and transparent model that allows for targeted government intervention and aligns fiscal planning with broader social and environmental goals. By moving beyond outdated averages and adjusting multiplier ranges based on policy characteristics and economic context, the bucket approach can create greater fiscal space for public investment and promote a more sustainable and equitable economy.