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Estimating the impact of public investment in the united Kingdom : Has the Golden Rule of Public Finance Made a Difference ?

Author

Listed:
  • Jérôme Creel

    (Observatoire français des conjonctures économiques)

  • Francesco Saraceno

    (Observatoire français des conjonctures économiques (OFCE))

  • Paola Veroni

    (Observatoire français des conjonctures économiques)

Abstract

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.

Suggested Citation

  • Jérôme Creel & Francesco Saraceno & Paola Veroni, 2006. "Estimating the impact of public investment in the united Kingdom : Has the Golden Rule of Public Finance Made a Difference ?," Sciences Po publications info:hdl:2441/2681, Sciences Po.
    • Handle: RePEc:spo:wpmain:info:hdl:2441/2681
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    References listed on IDEAS

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