Asymmetric Impact of Public Debt on Economic Growth in Selected EU Countries 1

The paper explores the asymmetric relation between public debt and economic growth in 13 EU countries in the period 1993 - 2013. A panel data model uncovers a linear relation between debt-to-GDP decrease and GDP growth, while the relation between the debt-to-GDP increase and GDP growth is defined by...

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Bibliographic Details
Published in:Ekonomický časopis 2015-10, Vol.63 (9), p.944
Main Authors: Suliková, Veronika, Djukic, Mihajlo, Gazda, Vladimír, Horváth, Denis, Kulhánek, Lumír
Format: Article
Language:slo
Subjects:
Data models
Debt restructuring
Deficit financing
Economic growth
Fiscal policy
GDP
Gross Domestic Product
Growth models
Impact analysis
Macroeconomics
Population
Studies
Variables
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Summary:The paper explores the asymmetric relation between public debt and economic growth in 13 EU countries in the period 1993 - 2013. A panel data model uncovers a linear relation between debt-to-GDP decrease and GDP growth, while the relation between the debt-to-GDP increase and GDP growth is defined by an inverted U-shaped curve (parabola) with the peak at a 64% debt-to-GDP ratio. We identified two main patterns in relations between debt-to-GDP and GDP growth: (i) hysteresis loop - country data trace the closed circle defined within the debt interval [53%, 113%] (Austria, Finland, Denmark) and (ii) debt trap - country debt-to-GDP ratio breaks the 113% level and indebtedness increase followed by the GDP fall is tracing the diverging tail of parabola (debt trap in Greece, Italy, Portugal).
ISSN:0013-3035