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

Jerome Creel, Paola Monperrus-Veroni () and Francesco Saraceno ()
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Paola Monperrus-Veroni: OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po
Francesco Saraceno: OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po

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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.

Date: 2006-03-30
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03462186
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Published in Banca d’Italia workshop on Fiscal Indicators, Banca d’Italia, Mar 2006, Perugia, Italy. pp.373 - 402

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Working Paper: Estimating the Impact of Public Investment for the United Kingdom: Has the Golden Rule of Public Finance Made a Difference? (2006)
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