Government Debt Spillovers - A Panel Data Analysis in Industrialized Countries

Usually the higher Government Debt country borrows money from other countries having lower Government Debt. This will end up with a higher lending rate in all countries. So, the spillover of a high debt problem in one country will cause pressures for higher interest rates in all remaining countries. This consequently could trigger inflationary pressures in all countries. Further, unemployment will rise and recession will come up in all other countries. Hence, a "financial problem" in one country in debt trouble could spread into the "financially healthy" countries. Thus, the larger the number the borrowing countries the more severe the repercussions. The sample covers most industrialized world. Data are taken from World Bank. The elaboration of these panel data is made feasible by means of the Eviews software package