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Long-Run Implications of Public Debt on Economic Growth

Author

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  • Ion Lucian Catrina

    () (Academy of Economic Studies, Bucharest)

Abstract

Many European countries faced with large fiscal deficits have adopted great plans of austerity to limit their public debt. In Romania, despite many measures to reduce public sector wages and some social allowances, in the 2009 and 2010 has been recorded only a small contraction of governmental expenditure but a fast growing public debt. However, the main effects of the austerity measures have materialized in a significant reduction in domestic demand and an important reduction of gross domestic product. Also, despite a substantial reduction of supply, the unemployment rate has not exceeded 8% in Romania. This paper aims to analyze how much the policies restricting budget deficit and public debt in Romania delayed the resumption of economic growth. Even the euro adoption perspective impose a stricter management of Romanian budgetary policies and other nominal convergence criteria, the hard core of economic policies must be the reinventing a new path to sustainable growth. It is necessary to conclude a new financing agreement with IMF for the next two years? We also intend to test the tolerance degree of the Romanian economy to public debt expansion (according to Reinhart&Rogoff model, 2010) as reflected in the growth rate of real gross domestic product.

Suggested Citation

  • Ion Lucian Catrina, 2011. "Long-Run Implications of Public Debt on Economic Growth," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 2(2), pages 83-91, June.
  • Handle: RePEc:dug:actaec:y:2011:i:2:p:83-91
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    File URL: http://journals.univ-danubius.ro/index.php/oeconomica/article/view/889/774
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    References listed on IDEAS

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    1. Aurel Iancu, 2008. "Nominal Convergence," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 2, pages 53-73, November.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    3. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    4. Talvi, Ernesto & Vegh, Carlos A., 2005. "Tax base variability and procyclical fiscal policy in developing countries," Journal of Development Economics, Elsevier, vol. 78(1), pages 156-190, October.
    5. Andrea F Presbitero, 2012. "Total Public Debt and Growth in Developing Countries," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 24(4), pages 606-626, September.
    6. J. E. Meade, 1958. "Is The National Debt A Burden?," Oxford Economic Papers, Oxford University Press, vol. 10(2), pages 163-183.
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