The Behaviour of US and UK Public Debt: Further Evidence Based on Time Varying Parameters

Authors

  • Aviral K. Tiwari IBS Hyderabad, a Constituent of IFHE (Deemed to be) University, Hyderabad, India
  • Suleyman Bolat FEAS, Aksaray University, Aksaray, Turkey
  • Mihai Mutascu LEO (Laboratoire d’Economie d’Orleans), University of Orleans, France FEAA and ECREB, West University of Timisoara, Romania

DOI:

https://doi.org/10.14665/1614-4007-23-1-002

Keywords:

Public debt, Budget deficit, Time varying parameter, Intertemporal constraint, Sustainability

Abstract

The paper investigates whether US and UK have followed sustainable debt policies during the period 1970-2012, by exploring the reaction of the primary surplus as percentage of GDP to variations in the debt to GDP ratio, as a powerful test. The main results reveal that the coefficient for UK is negative and significant, while for the US, we are unable to find a clear-cut evidence of the sustainability of public debt as the coefficient is also negative, but insignificant. In the case of the UK, the outputs reveal that government did not raise the primary surplus as the government debt increased rather reduced it and this reduction has been significant. On the other hand, the significance of the reaction coefficient demonstrates that the reaction of the primary surplus to increases in public debt varies over time.

All these evidences allow us to appreciate that the fiscal policy in the UK is not sustainable in the sense of satisfying of intertemporal budgetary constrain.

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Published

2016-06-24

How to Cite

Tiwari, A. K., Bolat, S., & Mutascu, M. (2016). The Behaviour of US and UK Public Debt: Further Evidence Based on Time Varying Parameters. Journal Transition Studies Review, 23(1), 11-19. https://doi.org/10.14665/1614-4007-23-1-002

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Section

Papers