The Macroeconomic Effect of the UK’s 2022 Cost-of-Living Payments

No 2316, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: This paper estimates the macroeconomic effect of the 2022 cost-of-living payments. Using a combination of the microsimulation model PolicyEngine UK and the global-econometric model NiGEM, we find the payments had a noticeable impact on real GDP growth - increasing it by 0.1% - but a minimal impact on inflation. Our paper finds that the transfers were strengthened due to them being targeted at ’hand-to-mouth’ consumers who would have spent more of the windfall compared to if the transfer had been distributed across the general population. Consequently, we find that 72% of the those who received the payment were hand-mouth at the time of disbursement. Despite concerns over the inflationary impact of these payments stated at the time, we find an insignificant impact on the price level. We interpret these findings as an example of why fiscal transfers should be judged on their ability to alleviate real income shocks and not on the grounds of macroeconomic stability, as their link to the latter is - at least in this case - tenuous.

Keywords: Fiscal Multiplier; Liquidity-Constrained; Social-Security (search for similar items in EconPapers)
JEL-codes: E21 E62 H53 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2023-05
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.lse.ac.uk/CFM/assets/pdf/CFM-Discussio ... MDP2023-16-Paper.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cfm:wpaper:2316

Access Statistics for this paper

More papers in Discussion Papers from Centre for Macroeconomics (CFM) Contact information at EDIRC.
Bibliographic data for series maintained by Helen Power ().