https://doi.org/10.52903/wp2025349
POLICY INTERVENTIONS TO MITIGATE THE LONG-RUN COSTS OF BREXIT
George Economides
Athens University of Economics and Business
James Malley
University of Glasgow
Apostolis Philippopoulos
Athens University of Economics and Business
Anastasios Rizos
Bank of Greece
ABSTRACT
This paper examines the long-term macroeconomic impacts of Brexit on the UK economy employing a dynamic general equilibrium model that incorporates endogenous firm entry, price markups and market competition. By integrating the trade frictions introduced by Brexit, the model explains how increased trade costs have altered firm behaviour, market structure, and broader economic performance. We assess a range of policy responses, from theoretically optimal but practically difficult tax-subsidy schemes to more realistic measures aimed at reducing firm entry barriers, encouraging private and public investment, and subsidizing labour costs. Our findings underscore the critical role of policies that can most directly influence firm creation, investment, and competition in addressing the structural challenges Brexit has introduced.
Keywords: Brexit; Investment; Fiscal and Industrial Policy
JEL-classifications: E65; E22; E61
Disclaimer: We would like to thank Andrea Colciago, Harris Dellas, Richard Dennis, Max Gillman, Tim Hatton, Campbell Leith, David Miles, Stephen Millard, Dimitris Malliaropoulos, Emmanouil Mamatzakis, Anton Muscatelli, Dimitris Papageorgiou, Graeme Roy, George Tavlas, Jonathan Temple, Ulrich Woitek and seminar participants at the Bank of Greece for helpful comments and suggestions. The views expressed are those of the authors and do not necessarily reflect those of the Bank of Greece. All errors and omissions are the responsibility of the authors.
Corresponding author:
Anastasios Rizos
Economic Analysis and Research Department
Bank of Greece
El.Venizelos 21, 10250 Athens, Greece
Tel.:+30-2103203604
email: arizos@bankofgreece.gr