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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.

Suggested Citation

  • Dreger, Christian & Reimers, Hans-Eggert, 2012. "Does euro area membership affect the relation between GDP growth and public debt?," Discussion Papers 327, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
    • Handle: RePEc:zbw:euvwdp:327
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    Cited by:

    1. Christian Dreger & Konstantin A. Kholodilin, 2018. "Early Warning System of Government Debt Crises," Discussion Papers of DIW Berlin 1724, DIW Berlin, German Institute for Economic Research.
    2. César Fernando Reis & Jelson Serafim, 2018. "Growth and Debt in Angola at Provincial Level," CEsA Working Papers 172, CEsA - Center for African and Development Studies.
    3. 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.
    4. Christian Dreger, 2017. "Long-term growth perspectives in Japan and the Euro area," Asia Europe Journal, Springer, vol. 15(4), pages 363-375, December.
    5. repec:tcb:cebare:v:17:y:2017:i:1:p:19-29 is not listed on IDEAS
    6. Marta Gómez-Puig & Simón Sosvilla-Rivero, 2017. "Public debt and economic growth: Further evidence euro area," IREA Working Papers 201715, University of Barcelona, Research Institute of Applied Economics, revised Sep 2017.
    7. Jianu, Ionuț & Pîrșcoveanu, Laura-Mădălina & Tudorache, Maria-Daniela, 2017. "The impact of financial risks on economic growth in EU-15," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 23-44.
    8. 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.
    9. KPEMOUA, Palakiyèm, 2016. "La Dette Exterieure Handicape T’Elle La Croissance Economique Du Togo ?
      [Is External Debt A Brake On Togo’S Economic Growth?]      ," MPRA Paper 77403, University Library of Munich, Germany, revised 09 Jan 2017.
    10. 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.
    11. Bettina Fincke & Alfred Greiner, 2015. "Public Debt and Economic Growth in Emerging Market Economies," South African Journal of Economics, Economic Society of South Africa, vol. 83(3), pages 357-370, September.
    12. Reimers, Hans-Eggert, 2013. "Remarks on the euro crisis," Wismar Discussion Papers 05/2013, Hochschule Wismar, Wismar Business School.
    13. Saungweme, Talknice & Odhiambo, Nicholas M, 2019. "Does public debt impact economic growth in Zambia? An ARDL -bounds testing approach," Working Papers 25666, University of South Africa, Department of Economics.
    14. 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.
    15. Ionuţ JIANU & Laura-Mădălina PÎRȘCOVEANU & Maria-Daniela TUDORACHE, 2017. "The impact of financial risks on economic growth in EU-15," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(610), S), pages 23-44, Spring.
    16. Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2017. "Heterogeneity in the debt-growth nexus: Evidence from EMU countries," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 470-486.
    17. 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.
    18. Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2018. "Nonfinancial debt and economic growth in euro-area countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 56(C), pages 17-37.
    19. Bettina Fincke & Alfred Greiner, 2016. "On the relation between public debt and economic growth: an empirical investigation," Economics and Business Letters, Oviedo University Press, vol. 4(4), pages 137-150.
    20. Bettina Bökemeier & Christiane Clemens, 2016. "Does it Pay to Fulfill the Maastricht Convergence Criteria? - Reflections on the Public Debt and Growth Nexus for Selected European Economies," CESifo Working Paper Series 6161, CESifo Group Munich.
    21. repec:ers:journl:v:xx:y:2017:i:2a:p:607-633 is not listed on IDEAS
    22. Dreger, Christian & Reimers, Hans-Eggert, 2016. "Does public investment stimulate private investment? Evidence for the euro area," Economic Modelling, Elsevier, vol. 58(C), pages 154-158.

    More about this item

    Keywords

    Euro area debt crisis; debt sustainability;

    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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