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

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  • Jérôme Creel

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

  • Paola 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 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.

Suggested Citation

  • Jérôme Creel & Paola Veroni & Francesco Saraceno, 2007. "Has the Golden Rule of Public Finance Made a difference in the UK," SciencePo Working papers Main hal-00972843, HAL.
    • Handle: RePEc:hal:spmain:hal-00972843
    Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-00972843
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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 17:53:35

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    3. Alexandru Minea & Patrick Villieu, 2009. "Borrowing to Finance Public Investment? The ‘Golden Rule of Public Finance’ Reconsidered in an Endogenous Growth Setting," Fiscal Studies, John Wiley & Sons, vol. 30(1), pages 103-133, March.
    4. Iancu, Aurel & Olteanu, Dan, 2015. "Fiscal Consolidation by Austerity and EU Surveillance Policies," Working Papers of National Institute for Economic Research 151209, Institutul National de Cercetari Economice (INCE).
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    7. 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).
    8. 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.
    9. Roberto Perotti, 2008. "In Search of the Transmission Mechanism of Fiscal Policy," NBER Chapters, in: NBER Macroeconomics Annual 2007, Volume 22, pages 169-226, National Bureau of Economic Research, Inc.
    10. Jérôme Creel & Francesco Saraceno, 2008. "Automatic Stabilisation, Discretionary Policy and the Stability Pact," SciencePo Working papers Main hal-00973049, HAL.
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    12. Mostafa Amir, Sabbih, 2017. "An Assessment of the Efficacy of Delivering the Annual Development Program in Bangladesh," MPRA Paper 84668, University Library of Munich, Germany.
    13. repec:spo:wpecon:info:hdl:2441/6152 is not listed on IDEAS
    14. repec:hal:spmain:info:hdl:2441/5l6uh8ogmqildh09h61k5ih10 is not listed on IDEAS
    15. Kea BARET & Theophilos PAPADIMITRIOU, 2019. "On the Stability and Growth Pact compliance: what is predictable with machine learning?," Working Papers of BETA 2019-48, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    16. Guillermo Perry & Luis Servén & Rodrigo Suescún, 2008. "Fiscal Policy, Stabilization, and Growth : Prudence or Abstinence," World Bank Publications, The World Bank, number 6818, September.
    17. Perotti, Roberto, 2007. "Fiscal policy in developing countries : a framework and some questions," Policy Research Working Paper Series 4365, The World Bank.
    18. KPEMOUA, Palakiyèm, 2016. "La Dette Exterieure Handicape T’Elle La Croissance Economique Du Togo ? [Is External Debt A Brake On Togo’S Economic Growth?]," MPRA Paper 77403, University Library of Munich, Germany, revised 09 Jan 2017.
    19. repec:hal:wpspec:info:hdl:2441/9909 is not listed on IDEAS
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    25. Jérôme Creel & Éric Heyer & Mathieu Plane, 2011. "Petit précis de politique budgétaire par tous les temps. Les multiplicateurs budgétaires au cours du cycle," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 61-88.

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    More about this item

    Keywords

    fiscal policy; golden rule of public finance; Structural VAR; Public Investment; UK Economy;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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