Arbeitspapier
The impact of high and growing government debt on economic growth: an empirical investigation for the euro area
This paper investigates the average impact of government debt on per-capita GDP growth in twelve euro area countries over a period of about 40 years starting in 1970. It finds a non-linear impact of debt on growth with a turning point—beyond which the government debt-to-GDP ratio has a deleterious impact on long-term growth—at about 90-100% of GDP. Confidence intervals for the debt turning point suggest that the negative growth effect of high debt may start already from levels of around 70-80% of GDP, which calls for even more prudent indebtedness policies. At the same time, there is evidence that the annual change of the public debt ratio and the budget deficit-to-GDP ratio are negatively and linearly associated with per-capita GDP growth. The channels through which government debt (level or change) is found to have an impact on the economic growth rate are: (i) private saving; (ii) public investment; (iii) total factor productivity (TFP) and (iv) sovereign long-term nominal and real interest rates. From a policy perspective, the results provide additional arguments for debt reduction to support longer-term economic growth prospects.
- Language
-
Englisch
- Bibliographic citation
-
Series: ECB Working Paper ; No. 1237
- Classification
-
Wirtschaft
National Debt; Debt Management; Sovereign Debt
Economic Growth and Aggregate Productivity: General
Fiscal Policy
Interest Rates: Determination, Term Structure, and Effects
- Subject
-
Economic Growth
Fiscal Policy
public debt
sovereign long-term interest rates
Öffentliche Schulden
Wirtschaftswachstum
Finanzpolitik
Zinsstruktur
EU-Staaten
- Event
-
Geistige Schöpfung
- (who)
-
Checherita-Westphal, Cristina
Rother, Philipp
- Event
-
Veröffentlichung
- (who)
-
European Central Bank (ECB)
- (where)
-
Frankfurt a. M.
- (when)
-
2010
- Handle
- Last update
-
10.03.2025, 11:45 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Checherita-Westphal, Cristina
- Rother, Philipp
- European Central Bank (ECB)
Time of origin
- 2010
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