Has the Golden Rule of Public Finance Made a Difference in the UK?

30 Pages Posted: 22 Jun 2007

See all articles by Jerome Creel

Jerome Creel

Observatoire Francais des Conjonctures Economiques (OFCE); ESCP Europe

Paola Monperrus-Veroni

Observatoire Francais des Conjonctures Economiques (OFCE)

Francesco Saraceno

Observatoire Francais des Conjonctures Economiques, Paris (OFCE)

Date Written: May 2007

Abstract

This paper uses the SVAR methodology to investigate the effects of public investment on growth, and more specifically, the effects of the introduction of a golden rule of public finance. We extend the existing literature by estimating a model of the British economy that takes into account long run factors such as public debt accumulation. We find that in such a long run framework, public investment has a significant and permanently positive effect on GDP growth; this result runs counter to the 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 the positive effect of public investment.

Keywords: fiscal policy, golden rule of public finance, Structural VAR, Public Investment, UK Economy

JEL Classification: C32, E60, E63, H60

Suggested Citation

Creel, Jerome and Monperrus-Veroni, Paola and Saraceno, Francesco, Has the Golden Rule of Public Finance Made a Difference in the UK? (May 2007). Available at SSRN: https://ssrn.com/abstract=993701 or http://dx.doi.org/10.2139/ssrn.993701

Jerome Creel

Observatoire Francais des Conjonctures Economiques (OFCE) ( email )

69 Quai d'Orsay
Paris 75007
France
+33 1 44 18 54 78 (Fax)

ESCP Europe ( email )

79, avenue de la République
Paris, 75011
France

Paola Monperrus-Veroni (Contact Author)

Observatoire Francais des Conjonctures Economiques (OFCE) ( email )

69 Quai d'Orsay
Paris 75007
France

Francesco Saraceno

Observatoire Francais des Conjonctures Economiques, Paris (OFCE) ( email )

69 Quai d'Orsay
75007 Paris
France

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