Can tax cuts boost the economy?

Date: 12 July 2010
Contacts: Melanie L├╝hrmann , Andrew Leicester , Matthew Wakefield , Stuart Adam , David Phillips , Peter Levell , Cormac O'Dea and Thomas Crossley
At the end of 2008 the UK government announced a cut in the VAT from 17.5% to 15% for 13 months, in an attempt to increase household spending and boost the economy. Drawing on our past research we were able to provide policy makers and the media with an immediate analysis of the likely impact of the cut. Our initial assessment of the likely impact of the policy was presented the day after the Pre-Budget Report which announced its implementation. This work was cited widely in the media and in Parliament.

During the period that VAT was lower, IFS researchers carried out an interim evaluation of the effectiveness of the policy. This work was presented at a conference organised by the IMF and drew widespread interest from policy makers in the UK and abroad. Following on from this work, IFS researcher Thomas Crossley was asked to present the analysis to officials at HM Treasury and HM Revenue & Customs and at the Australian Department of Treasury.