Healey’s first budget to include big devolution package to boost growth
Real-world example for IB, A-Level, AP and IGCSE Economics essays: Fiscal policy, Economic growth and the business cycle, Development economics
What happened
The Chancellor's first budget will include a large devolution package handing spending power to local leaders in England in order to boost growth.
The economics
This illustrates fiscal policy: through budget decisions and devolution, central government transfers spending decisions to local areas, hoping locally tailored investment will stimulate aggregate demand and regional growth. A student could trace the chain from central-to-local transfer of spending power to local investment and growth.
Evaluation
Whether devolution actually raises growth depends on local authorities' capacity and the size of the funding; short-run coordination costs may rise, while long-run results depend on investment going to high-return projects.
Practice question
Using this example, analyse the channels through which fiscal devolution might promote economic growth, and evaluate its limitations.
Where it fits in the syllabus
- Fiscal policy: The government changes spending and taxation to influence aggregate demand and economic activity.
- Economic growth and the business cycle: Long-run growth in real GDP and the short-run swings between expansion and recession, when output falls below potential.
- Development economics: How low-income and emerging economies grow, reduce poverty and raise living standards.
- IB Economics: Fiscal and Monetary Policy, Measuring Economic Activity, Aggregate Demand and Supply, Development Economics
- A-Level Economics: Economic Policy, Macroeconomic Objectives, Aggregate Demand and Supply, International Economics
- AP Macroeconomics: National Income and Price Determination, Long-Run Consequences of Stabilisation Policies, Economic Indicators and Business Cycle
- IGCSE Economics: Government Macroeconomic Policy, Macroeconomic Objectives, International Trade and Globalisation