Public investment in the United Kingdom has been persistently low compared to both its post-war levels and other OECD countries, and this shortfall has been widely seen as one of the causes of weak UK productivity growth since the global financial crisis. Although the Labour government elected in 2024 prioritised growth via higher public and private investment, its self-imposed fiscal rules have limited public investment, sparking debate and research on the UK fiscal framework. This Special Issue brings together recent research examining fiscal frameworks and includes contributions from academic and policy-oriented researchers and leading experts on this issue.

In this paper, we examine the role of state-owned enterprises (SOEs) in the transmission of fiscal policy shocks in China, combining a structural VAR with macroeconomic data and a panel model with firm-level data. We first identify two types of structural fiscal shocks using a Bayesian SVAR with sign restrictions and informative priors on structural elasticities: (1) stimulus shocks, defined as deviations from a policy rule for the budget deficit, and (2) government size shocks, which reflect changes in taxes not necessarily affecting the deficit. These shocks are then incorporated into a local projections framework using firm-level data. Our analysis reveals that SOEs respond fundamentally differently from non-SOEs to fiscal shocks. The results suggest that SOEs are not in strict competition with non-SOEs for government resources: both types of firms benefit from fiscal stimulus, yet SOEs are the ones predominantly subject to crowding out when the size of the government sector expands. At the same time, SOEs in strategic industries consistently receive government support under both government size shocks and tax-cut-led stimulus shocks. Moreover, in nonstrategic sectors, SOE investment exhibits a leading effect over non-SOE investment under tax-cut-led stimulus—an effect that vanishes under spending-led stimulus.

This paper examines how structural reforms can boost long-term growth and welfare in the U.S. economy. Using a model calibrated to historical data, we compare three reforms: reducing regulatory costs, increasing public investment, and eliminating rent-seeking. Our results show that all three improve welfare, but through different channels. Cutting regulatory burdens delivers quick efficiency gains with minimal adjustment costs. Raising public investment has the most substantial impact on growth and welfare, though it requires short-term trade-offs. Eliminating rent-seeking improves efficiency and leisure, but its growth effect is smaller. Overall, public investment emerges as the most powerful lever for growth, while regulatory simplification and institutional reform provide complementary benefits by reducing distortions, improving resource allocation, and reinforcing the efficiency gains from fiscal policy.

The article examines the tax policies the UK Labour government pursued in its first year in office in the context of its economic and fiscal inheritance. It presents the promises of the 2024 Labour Party Manifesto and the government’s main tax policies to June 2025. The article considers several possible interpretations of the government’s tax policies including the desire both to raise revenues and to establish fiscal credibility and assesses whether tax measures have been used to address social policy goals. The article concludes that, while cautious and even conservative, Labour’s approach to tax and tax policy making did not appear to be based on a cohesive plan, was not accompanied by a coherent or compelling narrative, and failed to seize the opportunity for a bolder strategy.

Since the Global Financial Crisis, the European Union (EU) has gone from crisis to crisis. The chronic growth and productivity problems have been compounded by the poor management of the Eurozone crisis, by the no-longer postponable green and digital transitions, and by the changing geopolitical environment, with the end of the old multilateral order. The European institutions still embed the principles of an old consensus based on market efficiency, and do not allow for macroeconomic and industrial policies for the structural transformation. We discuss possible reforms to realign the EU institutions with the needs and the challenges the bloc faces.

The article traces the trajectory of state activism in the EU and explores the institutional implications of its recent revival. It contends that, within the current European constitutional landscape, there is a strong demoicratic case for pursuing activist policies at the national level, with the EU serving as an enabler. Within the existing treaty framework, however, EU-enabled state activism may assume either an equalising or an asymmetric form. In the equalising mode, the EU helps narrow fiscal disparities among Member States, promoting a more balanced deployment of fiscal and industrial policies across the single market. In the asymmetric mode, by contrast, activist tools remain accessible primarily to Member States with substantial fiscal capacity. Crucially, the choice between these alternatives does not stem from democratic deliberation or political judgment, but rather from extant treaty constraints conceived at a time of subdued state interventionism. As a result, equalising EU-enabled state activism seems possible only in times of emergency, when EU institutions may temporarily loosen constitutional limits on national fiscal and industrial policy, adopt unconventional monetary measures, and muster the political consensus needed to approve significant fiscal programmes. In the absence of such emergencies, however, only the asymmetric form of state activism remains available – a mode of governance that poses serious risks to the integrity of the single market and to territorial cohesion. Thus, only treaty change, coupled with deeper political integration, could place state activism on a firmer footing and allow the EU to realise its equalising potential.

This paper argues that the current UK fiscal framework fails to support growth-enhancing public investment while inadequately restraining debt accumulation. Frequent changes to fiscal rules, their short horizon and incentives that prioritise current spending over long-term investment have undermined economic stability and productivity growth. We propose a reformed framework centred on clear fiscal objectives, enhanced OBR analysis of long-run sustainability and a target for the primary surplus consistent with maintaining stable debt. A supplementary investment rule would ensure adequate public capital formation. Together, these reforms aim to raise productivity, support resilience and improve living standards.

Over the past 5 years, the policy constraint posed by the sovereign bond market has strengthened. Across the G7, governments have been forced into rapid policy reversals, often due to sharp and unexpected rises in bond yields. The fact that the bond market acts as a constraint on policy—particularly on long-term investment—is well known. What has become apparent is that this market constraint has sharpened and now shapes G7 policymaking outside periods of acute crisis. This paper examines the bond market constraint, and how it has evolved in recent years. The past 5 years have seen a striking evolution, with record levels of G7 debt issued. Focusing on the United States and the United Kingdom, we outline two key empirical puzzles: first, for both, bond yields appear higher than justified by benchmark models; second, in the United Kingdom, yields have become highly (and surprisingly) volatile. We then review candidate explanations for these changes. We posit and examine new forces—demographic shocks, news coverage of fiscal watchdogs, the role of hedge funds and stablecoins. Finally, we use a simple econometric framework to provide a first test of whether these forces may explain bond yields. We find indicative evidence that they do. However, much remains unexplained, suggesting the importance of further work to understand the implications of the higher debt costs across the G7. As part of this analysis, we introduce a new dataset of fiscal watchdog media salience and publication patterns, which we make available to support future research.

We explore the effects of fiscal policy shocks on aggregate output and inflation. We use the Bayesian econometric methodology of Baumeister and Hamilton applied to the fiscal structural vector autoregressive model to evaluate key elasticities and fiscal multipliers using U.S. data. In our baseline specification that ends before Covid pandemic, the government spending multiplier is equal to approximately $0.57$ and tax multiplier is approximately $-0.35$ after one year. The short-term output elasticity of government spending is statistically insignificant and the output elasticity of taxes is approximately equal to $2.26$.

This study utilizes a Bayesian Dynamic Stochastic General Equilibrium model, calibrated with Chinese data, to assess the impact of public investments, which account for about 16.2% of China’s GDP. Despite an expected public capital stock of 256% of GDP, based on a 4.6% depreciation rate and a 0.73 efficiency rate of public investment (emerging-economy estimate), the actual figure stands at 152%. This significant discrepancy underscores the inefficiencies in public investments, with 43% of public investment expenditures enhancing the capital stock. The output elasticity (productivity) of public capital is estimated at just 3%, substantially lower than the previously estimated 8% for emerging economies, and has declined to 2% in the post-2008 period. Simulations based on these efficiency and productivity metrics reveal that the output multiplier of public investment is 0.7. China’s public investments reduce TFP, crowd out private investment, and raise the public debt-to-GDP ratio in the medium term.

Party competition sometimes resembles an auction, where parties seek to ‘buy’ elections through promises of economic largesse. In this article, I argue that whether parties engage in this practice will depend on political circumstances, such as the level of ideological competition. Incentives to promise more to voters will also vary depending on a party's electoral prospects: for parties that expect a significant level of government responsibility, promising too much is a risky strategy. I test these arguments by focusing on the spending commitments in party manifestos from 20 countries over the period 1945–2017. In line with expectations, parties tend to make more expansionary election pledges when ideological competition is more muted. In addition, left‐wing parties’ spending commitments are found to be influenced by their projected seat shares (based on opinion polls from before the start of the election campaign) relative to their competitors. Specifically, the stronger a left‐wing party's electoral prospects, the more fiscally conservative it tends to be, and vice versa.

Fiscal discipline, the sustainable balancing of government outlays with revenues, is one of the most extensively theorized and empirically investigated objects of inquiry in political economy. Yet, studies covering European Union (EU) countries have mostly ignored the oversight of national budgets via the EU excessive deficit procedure. I explain why this surveillance engenders lower deficits and investigate its effects across all EU member countries. Results indicate that the impact of surveillance during budget drafting offsets that of a two‐year shortening of expected government duration, the addition of one party to a government coalition when debt is high, or a leftward shift in government ideology when the risk of replacement is low. Moreover, estimates from exact matching on treatment histories indicate that these effects peak after four to five years. These findings have important normative implications for democratic policy‐making in European countries and the fledgling EU‐wide fiscal policy.

Since the outbreak of the eurozone's sovereign debt crisis, a range of fiscal policy measures have been adopted at the European Union (EU) and national levels that have given rise to claims of a significant reinforcement of fiscal policy constraint. Given the prominence and reinvigorated political appeal of fiscal rules in the EU and beyond, it is disconcerting how little we actually know about the link between fiscal rules, budgetary outcomes and market behaviour. In this research note, the aim is to take stock of the existing literature and challenge its contribution to the current policy debate on the merits of fiscal rules. Specifically it will focus on problems linked to endogeneity, measurements and contextuality.

The European debt crisis has uncovered serious tension between democratic politics and market pressure in contemporary democracies. This tension arises when governments implement unpopular fiscal consolidation packages in order to raise their macroeconomic credibility among financial investors. Nonetheless, the dominant view in current research is that governments should not find it difficult to balance demands from voters and investors because the economic and political costs of fiscal consolidations are low. This would leave governments with sufficient room to promote fiscal consolidation according to their ideological agenda. This article re‐examines this proposition by studying how the risk of governments to be replaced in office affects the probability and timing of fiscal consolidation policies. The results show that governments associate significant electoral risk with consolidations because electorally vulnerable governments strategically avoid consolidations towards the end of the legislative term in order to minimise electoral punishment. Specifically, the predicted probability of consolidation decreases from 40 per cent after an election to 13 per cent towards the end of the term when the government's margin of victory is small. When the electoral margin is large, the probability of consolidation is roughly stable at around 35 per cent. Electoral concerns are the most important political determinant of consolidations, leaving only a minor role for ideological concerns. Governments, hence, find it more difficult to reconcile political and economic pressures on fiscal policy than previous, influential research implies. The results suggest that existing studies under‐estimate the electoral risk associated with consolidations because they ignore the strategic behaviour that is established in this analysis.

This article investigates fiscal policy responses to the Great Recession in historical perspective. It explores general trends in the frequency, size and composition of fiscal stimulus as well as the impact of government partisanship on fiscal policy outputs during the four international recessions of 1980–1981, 1990–1991, 2001–2002 and 2008–2009. Encompassing 17–23 Organisation for Economic Cooperation and Development (OECD) countries, the analysis calls into question the idea of a general retreat from fiscal policy activism since the early 1980s. The propensity of governments to respond to economic downturns by engaging in fiscal stimulus has increased over time and no secular trend in the size of stimulus measures is observed. At the same time, OECD governments have relied more on tax cuts to stimulate demand in the two recessions of the 2000s than they did in the early 1980s or early 1990s. Regarding government partisanship, no significant direct partisan effects on either the size or the composition of fiscal stimulus is found for any of the four recession episodes. However, the size of the welfare state conditioned the impact of government partisanship in the two recessions of the 2000s, with left‐leaning governments distinctly more prone to engaging in discretionary fiscal stimulus and/or spending increases in large welfare states, but not in small welfare states.

This note introduces the Comparative Independent Fiscal Institutions Dataset which contains information on the institutional characteristics of forty-four independent expert bodies that are mandated to monitor fiscal policy and performance. Based on coding of legislative documents, it describes the institutional design of IFIs in mainly developed countries at different points in time. It comprises indicators and indices on formal political independence, expert proficiency and powers to intervene into the budget process. I report empirical variations between different models of IFIs such as Fiscal Councils and Parliamentary Budget Offices.

Using the Irish experience of public investment and fiscal policy management over the last 25 years, we identify five core lessons. These concern (1) the need for sustained investment effort even when facing tough choices regarding public expenditure, (2) the importance of assessing the adequacy of public capital, (3) counter-cyclicality as an important principle of public investment, (4) crowding-in private investment and (5) the challenge for public investment caused by longer-term challenges such as the necessary climate transition. We also propose two overarching design suggestions for fiscal policy and investment management frameworks.