Estimating the Impact of Public Investment for the United Kingdom: Has the Golden Rule of Public Finance Made a Difference?
Research Department, OFCE (French Observatory of Economic Conditions)
Observatoire Francais des Conjonctures Economiques (OFCE)
Observatoire Francais des Conjonctures Economiques, Paris (OFCE)
March 30, 2006
This paper uses a SVAR methodology to investigate the effects of public investment on growth, and more specifically, the effects of the introduction of a golden rule. We extend the existing literature by estimating a model of the British economy that takes into account long run factors. This seems necessary when dealing with a multi annual variable like public investment, and its long term effects on public finances through debt accumulation. We find that in such a long run framework investment has significant and permanent positive effects on GDP growth; this result runs counter to most recent literature on the topic, that was limited to a short run specification. We further find, by comparing different subsamples, that the introduction of the golden rule in 1997 strengthened this positive effect of public investment.
Number of Pages in PDF File: 30
Keywords: golden rule, structural VARs, public investment, UK economy
JEL Classification: C320, E600, E630, H600working papers series
Date posted: February 16, 2012
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