Paola Monperrus-Veroni

ON THE LONG‐TERM EFFECTS OF FISCAL POLICY IN THE UNITED KINGDOM: THE CASE FOR A GOLDEN RULE

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.

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

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.

A Simple Proposal for a Debt-Sensitive Stability Pact

The main rationale for fiscal policy rules is the concern for long-term sustainability of public finances, that in a monetary union may affect the other members. Among many other criticisms, the Stability and Growth Pact (SGP) has been seen as contradictory or incomplete because it focuses on deficit rather than debt, the main indicator of public finances soundness. Furthermore, the few references to debt that were present in the treaties and related regulations are essentially ignored in actual practices. Some of the reform proposals that came out lately have addressed the issue and tried to embed a debt criterion in the Pact. We review these proposals and put forward our own proposed modification: the deficit ratio countries should target is weighted by their relative debt. With respect to the other proposals taking into account debt, our own has the advantages of simplicity, symmetry, and low arbitrariness. To make it politically acceptable to high debt countries, nevertheless, could require to set the targets, at least initially, at level higher than the Maastricht criteria. Das Hauptargument fur fiskalpolitische Regeln ist die Berucksichtigung der langfristigen Nachhaltigkeit der offentlichen Finanzen, die in einer Wahrungsunion andere Mitgliedstaaten beruhrt. Neben anderen Punkten wird am Stabilitats- und Wachstumspakt (SWP) kritisiert, dass er widerspruchlich oder unvollkommen sei, da der Fokus auf dem Defizitkriterium liegt und nicht auf dem Schuldenstand. Die in den Vertragen zu findenden wenigen Verweise auf den Schuldenstand werden praktisch ignoriert. Einige spat veroffentlichte Reformverschlage tragen allerdings dem Schuldenstandskriterium Rechnung und versuchen, dies in den SWP aufzunehmen. Im vorliegenden Aufsatz wird vorgeschlagen, das Defizitkriterium mit dem Schuldenstand zu gewichten. Der Vorschlag ist einfach, symmetrisch und nicht arbitrar. Um den Vorschlag fur Lander mit hohem Schuldenstand attraktiv zu machen, mussten zumindest zu Beginn die Ziele fur sie uber dem Maastricht-Kriterium liegen durfen.

Discretionary Policy Interactions and the Fiscal Theory of the Price Level: A SVAR Analysis on French Data

We estimate a structural vector autoregressive (SVAR) model of the French economy. The econometric method originates in Blanchard and Perotti [Quarterly Journal of Economics, 2002] but owes also extensively to the fiscal theory of the price level (FTPL) that investigates the interactions between government surplus, debt accumulation and price dynamics. We have the objective, on the one hand, of assessing the effects of fiscal and monetary policy shocks on the economy; and, on the other, of studying the strategic interactions between fiscal and monetary authorities. As a consequence, the theoretical restrictions to identify our model are derived from a FTPL framework. Our estimations reveal so-called Keynesian features of fiscal and monetary shocks; meanwhile, they are consistent with the prediction of the FTPL as regards price dynamics. Although the first part of our findings agree with most of the recent literature on the subject, the non-rejection of the FTPL is an originality.

Fiscal policy is back in France and the United Kingdom

In this paper, we analyze the resurgence of discretionary fiscal policy in the fiscal theory of the price level (FTPL) framework. Despite its reliance on the new consensus macroeconomic (NCM) framework, the FTPL concludes that fiscal policy may lead monetary policy without hampering macroeconomic stability. We show that an empirical model deriving from this theory gives very interesting results: in France and the United Kingdom, fiscal policy has positive long-run effects. This is at odds with the orthodox nature of FTPL promoters who usually advocate fiscal rules and sanctions. We interpret our results as being consistent with Post Keynesian economic thinking. We conclude that the move of some economists from the NCM school of thought in favor of discretionary fiscal policy has promoted the visibility of Post Keynesian ideas on this topic.

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

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.