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The spending multiplier in a time of massive public debt : the euro area case

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Author Info

  • Vranceanu, Radu

    ()
    (ESSEC Business School)

  • Besancenot, Damien

    ()
    (University of Paris 13 and CEPN)

Abstract

This paper argues that in Euro-area economies, where the ECB cannot bail-out …nancially distressed governments, the …scal multiplier is adversely a¤ected by the amount of public debt. A regression model on a panel of 26 EU countries over the period 1996-2011 shows that a 10 percentage point increase in the debt-to-GDP ratio is connected to a slowdown in annual growth rates of 0.28 percentage point. Furthermore, the e¤ectiveness of …scal spending is adversely a¤ected by the amount of public debt; for a debt-to-GDP ratio above 150% the impact on growth of the …scal stimulus turns negative.

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Bibliographic Info

Paper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number WP1209.

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Length: 13 pages
Date of creation: 11 Feb 2012
Date of revision: 11 Feb 2012
Handle: RePEc:ebg:essewp:dr-12009

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Postal: ESSEC Research Center, BP 105, 95021 Cergy, France
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Web page: http://www.essec.edu/
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Related research

Keywords: Fiscal multiplier; Euro-area; Public debt; Illiquidity; the Great Recession;

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References

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  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," NBER Working Papers 15639, National Bureau of Economic Research, Inc.
  2. Jaejoon Woo & Manmohan S. Kumar, 2010. "Public Debt and Growth," IMF Working Papers 10/174, International Monetary Fund.
  3. Robert E. Hall, 2009. "By How Much Does GDP Rise If the Government Buys More Output?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(2 (Fall)), pages 183-249.
  4. Besancenot, Damien & Huynh, Kim & Vranceanu, Radu, 2004. "Default on sustainable public debt: illiquidity suspect convicted," Economics Letters, Elsevier, vol. 82(2), pages 205-211, February.
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Cited by:
  1. Christophe Blot & Marion Cochard & Jérôme Creel & Bruno Ducoudre & Danielle Schweisguth & Xavier Timbeau, 2014. "Fiscal consolidation in times of crisis: is the sooner really the better?," Sciences Po publications info:hdl:2441/2g7mhju69b9, Sciences Po.
  2. repec:spo:wpecon:info:hdl:2441/2g7mhju69b94obeaqlen09s1au is not listed on IDEAS
  3. Caruntu Roxana Corina, 2013. "Public Debt: Structure And Characteristics Romania’S Case," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 3, pages 30-35, June.

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