Andrew Lilico of Policy Exchange (plus many other areas, such as the Shadow MPC), has come up with an interesting compromise for those Centre-Right thinkers who are both annoyed by the high level of public spending, and worried about the macroeconomic consequences of cutting the deficit. Why not do a temporary tax cut at the same time?
A lot of precedent overseas suggests that it is easier, politically, to cut soon. But Keynesian macroeconomics argues against it. Does this square the circle?
I would be interested to know which tax cuts will have the same bang-for-buck as spending, but they do at least have less distortionary effects, particularly if well-targeted on high marginal spenders. Perhaps lift the income tax threshold?
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