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ON THE LONG‐TERM EFFECTS OF FISCAL POLICY IN THE UNITED KINGDOM: THE CASE FOR A GOLDEN RULE
Author(s) -
Creel Jérôme,
MonperrusVeroni Paola,
Saraceno Francesco
Publication year - 2009
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.1467-9485.2009.00499.x
Subject(s) - golden rule , economics , debt , investment (military) , public investment , term (time) , macroeconomics , fiscal policy , kingdom , public finance , monetary economics , econometrics , political science , law , physics , quantum mechanics , politics , paleontology , biology
This paper uses the SVAR methodology to investigate the effects of public investment on GDP and, more specifically, the effects of the introduction of a golden rule of public finance. We extend the existing literature by estimating a model for the British economy that takes into account long‐run factors such as public debt accumulation and policy interactions. We find that in such a long‐run framework, public investment has a significant and permanently positive effect on GDP; this result runs counter to the most recent literature on the topic using SVAR, which 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.