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The behaviour of US and UK public debt: further evidence based on time varying parameters

Author

Listed:
  • Süleyman Bolat

    (Aksaray University)

  • Aviral Kumar Tiwari

    (IFHE University)

  • Mihai Mutascu

    (LEO - Laboratoire d'Économie d'Orleans [UMR7322] - UO - Université d'Orléans - UT - Université de Tours - CNRS - Centre National de la Recherche Scientifique)

Abstract

The paper investigates whether US and UK have followed sustainable debt policies during the period 1970-2012, by exploring the reaction of the primary surplus as percentage of GDP to variations in the debt to GDP ratio, as a powerful test. The main results reveal that the coefficient for UK is negative and significant, while for the US, we are unable to find a clear-cut evidence of the sustainability of public debt as the coefficient is also negative, but insignificant. In the case of the UK, the outputs reveal that government did not raise the primary surplus as the government debt increased rather reduced it and this reduction has been significant. On the other hand, the significance of the reaction coefficient demonstrates that the reaction of the primary surplus to increases in public debt varies over time. All these evidences allow us to appreciate that the fiscal policy in the UK is not sustainable in the sense of satisfying of intertemporal budgetary constrain.

Suggested Citation

  • Süleyman Bolat & Aviral Kumar Tiwari & Mihai Mutascu, 2014. "The behaviour of US and UK public debt: further evidence based on time varying parameters," Working Papers halshs-01107962, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01107962
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01107962
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    Keywords

    public debt; budget deficit; time varying parameter; intertemporal constraint; sustainability;
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