UK Fiscal Policy Sustainability, 1955-2006
AbstractWe test for fiscal policy sustainability in the UK for the period 1955-2006. We find evidence of sustainability with three structural breaks, respectively occurring in the early 1970s, early 1980s and late 1990s. UK fiscal policy has been sustainable throughout the sample period except from 1973-1981 when a non-Ricardian regime applied. For the remaining periods correction of fiscal disequilibrium occurs through adjustments in public revenue rather than expenditure. Finally, we find evidence of non-linear fiscal adjustment, with UK authorities not reacting to relatively small deficits; but correcting exceedingly large deficits and any temporary surpluses relatively fast.
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Bibliographic InfoPaper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2011/9.
Length: 26 pages
Date of creation: Mar 2011
Date of revision:
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Fiscal policy; Sustainability; UK; Structural breaks; Non-linear adjustment;
Other versions of this item:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-09 (All new papers)
- NEP-CBA-2011-04-09 (Central Banking)
- NEP-HIS-2011-04-09 (Business, Economic & Financial History)
- NEP-MAC-2011-04-09 (Macroeconomics)
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