Professor Jagjit ChadhaNational Institute of Economic and Social Research
Policy decisions on expenditure and tax are taken against a backdrop of considerable error, both in measuring the state of the economy and in producing economic forecasts. In every year since 2007, the GDP forecast for the year of the budget (by HM Treasury until 2010 and then by the OBR) has over-predicted the outturn for economic growth. As a result, there have been significant revisions to our understanding of the state of the economy.
This project seeks to understand the scale of these revisions in the recent history of UK fiscal policy (1993-2015), the impact (if any) of these revisions on the planning and control of UK public expenditure during that period, and how the Treasury used statistical techniques and ‘rules of thumb’ to deal with the uncertainty arising from imperfect knowledge about the true state of the economy.
This project is in two stages. Based on NIESR’s own set of real-time data from 1993, a pilot project will generate new evidence on whether data revisions were statistically large and significant. By conducting interviews with key players, we will measure the impact (if any) of these revisions on the planning and control of UK public expenditure and the role of statistical techniques and ‘rules of thumb’ such as the claimant count or changes in tax revenues.
The findings will be presented and discussed at a workshop in March 2018. The conclusions of the research and the workshop discussions will provide the basis for a full-scale project on the role of fiscal policy and debt management in dealing with aspects of uncertainty such as data, which provide ‘noisy’ measures of the economy (1993-2015). The aim of the project is to make a contribution both to macroeconomic theory and to fiscal policy.
Professor Jagjit ChadhaPrimary researcherNational Institute of Economic and Social Research
Director, WelfareNuffield Foundation