The Euro, Public Expenditure, and Taxation

This paper explores the probable consequences for public expenditure in the United Kingdom if Britain were to join the euro. It focuses on the effects of sterling joining the euro (and the associated implications, such as monetary policy being governed by the European Central Bank). It does not consider any broader questions of the effects of membership in the European Union and the policies pursued by the EU and the European Commission. Since the fiscal stance of government influences the level of demand in the economy, there are also important implications for the level of employment more generally. While the general deflationary nature of the economic policy of the eurozone (an issue we have explored elsewhere on many occasions) should not be overlooked, the focus of this paper is on the implications for public expenditure of the eurozone and the UK’s possible entry into the euro.