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

  • Jérôme Creel

    (OFCE)

  • Francesco Saraceno

    (OFCE)

  • Paola Veroni

    (OFCE)

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.

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Paper provided by Sciences Po in its series Sciences Po publications with number 2007-13.

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Date of creation: Apr 2007
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Handle: RePEc:spo:wpmain:info:hdl:2441/1181
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