The spending multiplier in a time of massive public debt : the euro area case
AbstractThis paper argues that in Euro-area economies, where the ECB cannot bail-out nancially distressed governments, the scal multiplier is adversely affected 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 affected 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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Date of creation: 02 Nov 2012
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Fiscal multiplier; Euro-area; Public debt; Illiquidity; the Great Recession;
Other versions of this item:
- Radu Vranceanu & Damien Besancenot, 2013. "The spending multiplier in a time of massive public debt: The Euro-area case," Applied Economics Letters, Taylor & Francis Journals, vol. 20(8), pages 758-762, May.
- Vranceanu, Radu & Besancenot, Damien, 2012. "The spending multiplier in a time of massive public debt : the euro area case," ESSEC Working Papers WP1209, ESSEC Research Center, ESSEC Business School, revised 11 Feb 2012.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- G01 - Financial Economics - - General - - - Financial Crises
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-16 (All new papers)
- NEP-MAC-2012-09-16 (Macroeconomics)
- NEP-PUB-2012-09-16 (Public Finance)
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