UK Debt Sustainability: Some Nonlinear Evidence and Theoretical Implications
In this paper we assess whether the UK public finances were sustainable for the period 1919-2001. A robust test of sustainability is presented using a nonlinear representation of the debt-GDP ratio. Empirical evidence supports debt sustainability. Moreover, the exponential smooth transition autoregressive representation is evidence that sustainability is the result of active debt management rather than tax smoothing. The results strongly support the active debt management hypothesis for the UK. Copyright © 2008 The Authors.
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