Heterogeneity in the debt-growth nexus: Evidence from EMU countries
The objective of this paper is to examine whether the threshold beyond which a public debt change may have a detrimental effect on economic growth changes across euro area countries during the 1961–2015 period. In contrast with previous studies, we do not use panel estimation techniques, but impleme...
| Autores: | , |
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| Tipo de recurso: | artículo |
| Fecha de publicación: | 2017 |
| País: | España |
| Institución: | Universidad Complutense de Madrid (UCM) |
| Repositorio: | Docta Complutense |
| Idioma: | inglés |
| OAI Identifier: | oai:docta.ucm.es:20.500.14352/18844 |
| Acceso en línea: | https://hdl.handle.net/20.500.14352/18844 |
| Access Level: | acceso abierto |
| Palabra clave: | C22 F33 H63 O40 O52 Public debt Economic growth Heterogeneity Multiple structural breaks Euro area Peripheral EMU countries Central EMU countries. Desarrollo económico Econometría (Economía) Economía internacional Economía pública 5307.03 Modelos y Teorías del desarrollo Económico 5307.04 Estudios del desarrollo Económico 5302 Econometría 5310 Economía Internacional |
| Sumario: | The objective of this paper is to examine whether the threshold beyond which a public debt change may have a detrimental effect on economic growth changes across euro area countries during the 1961–2015 period. In contrast with previous studies, we do not use panel estimation techniques, but implement a time-series analysis for each country based on the growth literature. The results suggest that in all the countries but Belgium a debt increase begins to have detrimental effects on growth well before the SGP debt ceiling (a debt ratio of around 40% and 50% in central and peripheral countries, respectively) is reached. So, although austerity policies should be applied in EMU countries – since according to our results debt reduction barely exerts any significant beneficial impact on EMU countries' growth – they should be accompanied by structural reforms that can increase their potential GDP. Moreover, as our results suggest that the harmful impact of a debt change on growth does not occur beyond the same threshold and with the same intensity in all EMU countries, a focus on average ratios and impacts may be unsuitable for defining policies. Specifically, our findings suggest that the pace of fiscal adjustment should be lower in Greece and Spain than in the other countries. |
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