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On The Long‐Term Effects Of Fiscal Policy In The United Kingdom: The Case For A Golden Rule

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  • Jérôme Creel
  • Paola Monperrus‐Veroni
  • Francesco Saraceno

Abstract

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

Suggested Citation

  • Jérôme Creel & Paola Monperrus‐Veroni & Francesco Saraceno, 2009. "On The Long‐Term Effects Of Fiscal Policy In The United Kingdom: The Case For A Golden Rule," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(5), pages 580-607, November.
    • Handle: RePEc:bla:scotjp:v:56:y:2009:i:5:p:580-607
    DOI: 10.1111/j.1467-9485.2009.00499.x
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