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Neglect Private Debt at the Economy’s Peril?

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  • Leslie G. Manison
  • Savvakis C. Savvides

Abstract

The role of private debt as a cause of financial crises and prolonged recessions is often neglected. In Cyprus policy concern has focused on government debt despite the problem of a rapid growth of private debt and its wasteful use. Private debt in Cyprus stands at over 350% of GDP, but the European Commission’s policy of austerity and encouraging the redeployment of private assets through bankruptcy is based on a misdiagnosis of the problem. Studies of the importance of private debt and balance sheet recessions following financial crises conclude that policy-imposed austerity can only worsen and delay economic recovery. In Cyprus there is scope to raise productive government expenditures through using European Union funds, by raising revenue from the large base of unpaid taxes and by taxing the large shadow economy estimated at over 25% of GDP.

Suggested Citation

  • Leslie G. Manison & Savvakis C. Savvides, 2017. "Neglect Private Debt at the Economy’s Peril?," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 18(1), pages 1-17, January.
    • Handle: RePEc:wej:wldecn:656
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    Citations

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    Cited by:

    1. Savvakis C. Savvides, 2018. "Socialising the losses and privatising the gains The case of Cyprus five years after the bail-in of bank deposits," Development Discussion Papers 2018-02, JDI Executive Programs.
    2. Edoardo Beretta & Giulia Miniero & Francesco Ricotta, 2021. "Consumers’ Journey between Liquid and Solid Consumption," Sustainability, MDPI, vol. 13(24), pages 1-20, December.
    3. Savvakis C. Savvides, 2020. "Dealing with pandemic recession in conditions of uncertainty and extreme private debt The case of Cyprus," Development Discussion Papers 2020-21, JDI Executive Programs.
    4. Savvakis C. Savvides, 2023. "Risk Analysis in Project Appraisal: The assessment of risk and return in capital investment decisions," Development Discussion Papers 2023-13, JDI Executive Programs.
    5. Savvakis C. Savvides, 2019. "Unproductive Debt and the Impairment of the Real Economy," Development Discussion Papers 2019-10, JDI Executive Programs.
    6. Savvakis C. Savvides, 2022. "Risk through the Looking Glass," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 23(4), pages 71-98, October.
    7. Savvides, Savvakis C., 2017. "Private Debt is the Problem!," MPRA Paper 80627, University Library of Munich, Germany.
    8. Helen Kavvadia & Savvakis C. Savvides, 2019. "Funding Economic Development and the Role of National Development Banks-The Case of Cyprus," Development Discussion Papers 2019-09, JDI Executive Programs.

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