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Estimating the Impact of Public Investment for the United Kingdom: Has the Golden Rule of Public Finance Made a Difference?

Author

Listed:
  • Jérôme Creel

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Paola Monperrus-Veroni

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Francesco Saraceno

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

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 & Paola Monperrus-Veroni & Francesco Saraceno, 2006. "Estimating the Impact of Public Investment for the United Kingdom: Has the Golden Rule of Public Finance Made a Difference?," Post-Print hal-03462186, HAL.
    • Handle: RePEc:hal:journl:hal-03462186
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03462186
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    References listed on IDEAS

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    Cited by:

    1. Werneck, Rogério L.F. & Irwin, Timothy & Sturzenegger, Federico & Perry, Guillermo & Servén, Luis & Mihov, Ilian & Giavazzi, Francesco & Blanchard, Olivier & Araújo, Carlos Hamilton Vasconcelos & Sues, 2008. "Fiscal Policy, Stabilization, and Growth: Prudence or Abstinence?," IDB Publications (Books), Inter-American Development Bank, number 356.
    2. 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, March.
    3. repec:idb:brikps:356 is not listed on IDEAS
    4. 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.
    5. Guillermo Perry & Luis Servén & Rodrigo Suescún, 2008. "Fiscal Policy, Stabilization, and Growth : Prudence or Abstinence," World Bank Publications, The World Bank, number 6818, September.

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