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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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  1. Carmen M. Reinhart & Vincent R. Reinhart & Kenneth S. Rogoff, 2012. "Public Debt Overhangs: Advanced-Economy Episodes since 1800," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 69-86, Summer.
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  11. Andros Kourtellos & Thanasis Stengos & Chih Ming Tan, 2012. "The Effect of Public Debt on Growth in Multiple Regimes," Working Paper Series 60_12, The Rimini Centre for Economic Analysis.
  12. Panizza, Ugo & Presbitero, Andrea F., 2014. "Public debt and economic growth: Is there a causal effect?," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 21-41.
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  15. repec:idb:brikps:78877 is not listed on IDEAS
  16. Fabrizio Balassone & Maura Francese & Angelo Pace, 2011. "Public Debt and Economic Growth in Italy," Quaderni di storia economica (Economic History Working Papers) 11, Bank of Italy, Economic Research and International Relations Area.
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Cited by:

  1. Simón Sosvilla-Rivero & Marta Gómez-Puig, 2016. "“Debt-growth linkages in EMU across countries and time horizons”," IREA Working Papers 201610, University of Barcelona, Research Institute of Applied Economics, revised Apr 2016.
  2. Eberhardt, Markus & Presbitero, Andrea F., 2015. "Public debt and growth: Heterogeneity and non-linearity," Journal of International Economics, Elsevier, vol. 97(1), pages 45-58.
  3. Reimers, Hans-Eggert, 2013. "Remarks on the euro crisis," Wismar Discussion Papers 05/2013, Hochschule Wismar, Wismar Business School.
  4. Kazuo Ogawa & Elmer Sterken & Ichiro Tokutsu, 2016. "Public Debt, Economic Growth and the Real Interest Rate:A Panel VAR Approach to EU and OECD Countries," ISER Discussion Paper 0955, Institute of Social and Economic Research, Osaka University.
  5. Marta Gómez-Puig & Simón Sosvilla-Rivero, 2015. "“Short-run and long-run effects of public debt on economic performance: Evidence from EMU countries”," IREA Working Papers 201522, University of Barcelona, Research Institute of Applied Economics, revised Sep 2015.
  6. 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.

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