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Nonolinear Effect Of The Public Debt On The Growth Of Gdp: The Case Of Croatia

Author

Listed:
  • Tihana Skrinjaric

    (University of Zagreb)

  • Zrinka Orlovic

    (University of Zagreb)

Abstract

This research focuses on effects of public debt on economic growth in Croatia. Based upon previous existing literature, this study emphasizes the non linear relationship between public debt and economic growth. Such study has not yet been carried out for Croatia. The empirical research uses quarterly data from January 2000 to April 2016 in order to estimate different specifications of the aforementioned nonlinear relationship. One of the goals is to determine the turning point of the public debt effect. In that way, we want to test the hypothesis that the effects of public debt vary with relation to the share of public debt in GDP. Moreover, the consequences of such relation mean that policy makers need to adjust the structure, size and purpose of public indebtedness in order to obtain long-term sustainable growth. The results show that the intensity of the effect of public debt on economic growth differs with respect to the size of the share of public debt in GDP. Furthermore, the robustness of the results has been checked by adding specific economic variables in the models. Also, results predict that Croatia is in a state where the effect of public debt on economic growth is negative. In that way, it is recommended for economic policy makers to take actions regarding fiscal consolidation and lowering (foreign) indebtedness.

Suggested Citation

  • Tihana Skrinjaric & Zrinka Orlovic, 2017. "Nonolinear Effect Of The Public Debt On The Growth Of Gdp: The Case Of Croatia," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 26(2), pages 517-538, december.
    • Handle: RePEc:avo:emipdu:v:26:y:2017:i:2:p:517-538
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    More about this item

    Keywords

    public debt; economic growth; nonlinear model; sustainability of growth; Croatia;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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