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Does euro area membership affect the relation between GDP growth and public debt?

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  • Dreger, Christian
  • Reimers, Hans-Eggert

Abstract

We analyse the relationship between the debt to GDP ratio and real per capita GDP growth for the euro area members by distinguishing between periods of sustainable and non-sustainable debt. Thresholds are theory-based and depend on the macroeconomic framework. If the interest rate exceeds nominal output growth, primary budget surpluses are required to achieve a sustainable debt ratio. The negative impact of the debt to GDP ratio is particularly strong for non sustainable ratios and especially relevant for the euro area. This suggests that the participation in monetary union might entail an additional risk for its members.

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Paper provided by European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics in its series Discussion Papers with number 327.

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Date of creation: 2012
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Handle: RePEc:zbw:euvwdp:327
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Keywords: Euro area debt crisis; debt sustainability;

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Find related papers by JEL classification:
  • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
  • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
  • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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  15. Christian Dreger & Hans-Ulrich Brautzsch, 1999. "Firm Investment Behaviour in Germany: An Explanation Based on Seasonal Cointegration Techniques," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 219(3+4), pages 284-297, September.
  16. Jaejoon Woo & Manmohan S. Kumar, 2010. "Public Debt and Growth," IMF Working Papers 10/174, International Monetary Fund.
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Cited by:

  1. Nikolaos Antonakakis, 2014. "Sovereign Debt and Economic Growth Revisited: The Role of (Non-)Sustainable Debt Thresholds," Department of Economics Working Papers wuwp187, Vienna University of Economics and Business, Department of Economics.
  2. Reimers, Hans-Eggert, 2013. "Remarks on the euro crisis," Wismar Discussion Papers 05/2013, Hochschule Wismar, Wismar Business School.

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