Has the Golden Rule of Public Finance Made a Difference in the UK?

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. Keywords AbstractThis 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.

Fiscal Policy In Developing Countries : A Framework And Some Questions

“…With few exceptions, however, these studies use annual data, thereby making it difficult to separate true exogenous shocks to public investment from the endogenous response of public investment to other macroeconomic shocks. Quarterly data are used by Otto and Voss [1996], Voss [2002], Kamps [2004], Mittnik and Neumann [2001], Perotti (2007b), andCreel, Monperrus-Véroni andSaraceno (2007). Using this methodology, Perotti (2007b) finds that in four OECD countries for which the data are available (the US, the UK, Canada and Australia), there is little evidence that a shock to public investment raises GDP in the long run.…”

Mali

“…-Planification : Balassone et Franco (2000), Creel et al (2007) et Schaechter et al (2012, traitent du rôle des règles budgétaires dans l'établissement de niveaux soutenables d'investissement direct. L'OCDE (2014) souligne l'importance d'une planification stratégique intégrée et efficace au niveau national et infranational.…”