Debt sustainability is a very topical discussion, with many countries national debt growing each year. This analysis is on one of the most advanced economies, the UK and with the use of macroeconomic theories, national debt can be studied. This study was then broken down into different research aims to answer the overall question of national debt sustainability. With these aims focusing on the variables that were used throughout this study.
This study used a Vector Auto Regression, VAR, model so that impulse response functions, IRF’s, could be generated. This was done to not only see the level of the impact, but also the statistical significance of the effects. The results of this study were clear and showed that the use of fiscal policy was effective, when aggregate tax revenue increased, the national debt decreased. It also found that annually managed expenses, AME’s, did not have a significant impact on the national debt, making these costs justified. The effects of different tax revenue collection methods showed results that support the economy in the long run.
This study offered a different insight into debt sustainability for the UK and from this it was concluded overall that the UK national debt was sustainable. As well as that, the UK should continue to make use of the national debt because the benefits to the economy are greater than the cost.
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