Structual Break: Tests of the Present-Value Government Borrowing Constraint and Stability of Debt-GDP Ratio in the UK: 1970-2000
In this paper we argue that allowance for structural breaks (Perron, 1989, Zivot and Andrews, 1992) in the relevant time–series can provide more accurate tests of the present–value borrowing constraint (Hamilton and Flavin, 1986) by accommodating any changes in the processes generating budget deficits and alterations in fiscal policies. Our results confirm that the UK government has satisfied the present value constraint during the period 1992–2000.
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