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A Dynamic Solution to Government Debt is ignored

by on February 29, 2012

I was surprised when I heard Mark Littlewood of the Institute of Economic Affairs (IEA) debate for the increase in fuel duties expected in August, even though earlier research by Paul Withrington for the IEA illustrates that the government transportation policy has been a disaster.

Mark Littlewood was right to state that the government is running out of money and a credible plan is needed to reduce the national debt. Mark is, in most circumstances, against higher taxes and I feel this was his moment to make a more sophisticated, dynamic efficiency, argument. The government could reduce subsidies to rail and not increase the fuel duty leaving the net effect on the budget unchanged.

This policy only has an upside. Statically the aggregate budget is the same. Yet the dynamic effect means that the transport market is less distorted giving the economy a better chance to grow and reducing the deficit. this is just one of many dynamic options open to governments. There will be more on economic reforms tomorrow.

From → Extended Society

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