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Estimating the Impact of Public Investment for the United Kingdom: Has the Golden Rule of Public Finance Made a Difference?

Abstract : This paper uses a SVAR methodology to investigate the effects of public investment on growth, and more specifically, the effects of the introduction of a golden rule. We extend the existing literature by estimating a model of the British economy that takes into account long run factors. This seems necessary when dealing with a multi annual variable like public investment, and its long term effects on public finances through debt accumulation. We find that in such a long run framework investment has significant and permanent positive effects on GDP growth; this result runs counter to 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 this positive effect of public investment.
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https://hal-sciencespo.archives-ouvertes.fr/hal-03462186
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Submitted on : Wednesday, December 1, 2021 - 4:38:39 PM
Last modification on : Saturday, May 14, 2022 - 3:29:23 AM

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  • HAL Id : hal-03462186, version 1
  • SCIENCESPO : 2441/2681

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Jérôme Creel, Paola Monperrus-Veroni, Francesco Saraceno. Estimating the Impact of Public Investment for the United Kingdom: Has the Golden Rule of Public Finance Made a Difference?. Banca d’Italia workshop on Fiscal Indicators, Banca d’Italia, Mar 2006, Perugia, Italy. pp.373 - 402. ⟨hal-03462186⟩

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