12 Conclusions
The potential for Crown financial policy to have real effects on the economy raises the obvious question as to how policy should be set to maximise economic welfare. As a first step to answering this question, this paper organises the literature on Crown financial policy around the policy framework of objectives, targets and instruments.
In this context, the Crown balance sheet may be viewed as an instrument available to target one or more economic policy objectives. Equally, the framework recognises that other instruments unrelated to Crown financial policy may be available to target one or more objectives.
Seven distinct policy objectives have been identified as potentially relevant for ensuring that Crown financial policy contributes to maximising economic welfare. The paper has identified the policy targets and, where possible, specific instruments implied by various economic models.
The main conclusion of the paper is that four objectives should be the main factors that inform the design of alternative policy options for Crown financial policy. The four objectives relate to minimising distortionary taxation, time-consistency of policy, agency costs of government, and downside efficiency risk. Three of these objectives imply targets that are potentially mutually conflicting.
These results will serve as inputs to a future paper that takes into account these conflicts to fashion 2-3 alternative policy options for further analysis.
