The Impact of Financial Crisis on UK Fiscal Policy and Government Debt Essay

The Impact of Financial Crisis on UK Fiscal Policy and Government Debt - Essay Example The current crisis is definitely more pronounced and prolonged than any other previous financial crisis, yet support from fiscal policy, monetary policy, use of guarantees on liabilities and purchase of assets has helped in reducing the direct fiscal costs (Laeven & Valencia, 2012). While such efforts might have led to minimizing the direct impact of the financial crisis yet it has been becoming a rising concern for fiscal sustainability in many countries, as the fiscal policy has led to increasing the public debt burden as well as the government contingent liabilities size. Fiscal policy holds great interest for policy makers as it has the ability to act as an instrumental tool for growth and development in the long run (Brahmbhatt & Otaviano, 2012). Fiscal policy is no business strategy, for a national economy is by no means a business, it does not earn; rather it implies how the public is taxed and how the government spends the gathered money (debt bombshell, 2012). In the UK the national debt is the amount that is owed to the private sector and UK gilts purchases. The government spends more money than it can afford to tax, leading to selling bonds/gilts.The case study is based on two economic theories and their fundamental aspects while addressing the research questions.Battaglini and Coate (2008) presented the political economy model. The model was meant to understand the influence of the fiscal policy that it has on the Business cycle