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Has the Golden Rule of Public Finance Made a difference in the UK

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  • Jérôme Creel

    (OFCE)

  • Francesco Saraceno

    (OFCE)

  • Paola Veroni

    (OFCE)

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.

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Paper provided by Sciences Po in its series Sciences Po publications with number 2007-13.

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Date of creation: Apr 2007
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Handle: RePEc:spo:wpmain:info:hdl:2441/1181

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

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. More on the Euro Crisis
    by Francesco Saraceno in Sparse Thoughts of a Gloomy European Economist on 2011-11-01 12:53:35
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Cited by:
  1. Jean-Paul Fitoussi & Francesco Saraceno, 2008. "Fiscal Discipline as a Social Norm: The European Stability Pact," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(6), pages 1143-1168, December.
  2. Roberto Perotti, 2007. "In Search of the Transmission Mechanism of Fiscal Policy," NBER Working Papers 13143, National Bureau of Economic Research, Inc.
  3. Philip Arestis & John McCombie, 2009. "On The Effectiveness Of Fiscal Policy As An Instrument Of Macroeconomic Policy," Economic Affairs, Wiley Blackwell, vol. 29(1), pages 77-79, 03.
  4. Guillermo Perry & Luis Servén & Rodrigo Suescún, 2008. "Fiscal Policy, Stabilization, and Growth : Prudence or Abstinence," World Bank Publications, The World Bank, number 6818, August.
  5. Philip Arestis, 2011. "Fiscal Policy Is Still an Effective Instrument of Macroeconomic Policy," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(2), pages 143-156, June.
  6. Frédéric Marty, 2007. "Partenariats public-privé, règles de discipline budgétaire, comptabilité patrimoniale et stratégies de hors bilan," Documents de Travail de l'OFCE 2007-29, Observatoire Francais des Conjonctures Economiques (OFCE).

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