In recent decades, macroeconomic research, analysis and debate has focussed more of its attention on monetary rather than fiscal economics. In UK and around the world that focus is now shifting back. Even prior to the Covid-19 pandemic, the economics underpinning fiscal policy was gaining significantly more attention as an area of research, study and discussion. Rightly so given its critical role in the economy and the focus the national debate places on it. In policy terms fiscal judgements have never left the main stage – throughout our economic history governments can be defined by their fiscal strategy and policy, stated or revealed.

In its practical operation, decisions on the macroeconomic choices for fiscal policy and the microeconomic choices cannot be separated. The fiscal stance, the amount borrowed from future generations or previous debts repaid, is the key macroeconomic lever the government has in affecting the level of demand in the economy. And is considered and decided in the context of the current understanding of and expectations for the economic cycle and fiscal metrics. The precise measures that make up that stance – the particular constellation of taxes and spending choices - determine the overall macroeconomic impact of that stance, as well as the efficiency and distributional consequences.

These interdependencies create complicated optimisation problems for the fiscal policy maker. They are why the operation of fiscal policy cannot and should not follow the prescriptions of economists alone. The distributional impacts of these choices make fiscal policy the most political area of economic policy. Policy makers are choosing between tax bases – income, consumption, wealth etc. and spending lines – health, education, infrastructure and so on. In doing so they are determining what mix of contributing to and receiving from the state different individuals and households face. Including choosing between current and future generations. These decisions are ones that only elected and accountable politicians can take.