The spending multiplier in a time of massive public debt: The Euro-area case
This article argues that in Euro-area economies, where the European Central Bank (ECB) cannot bail out financially distressed governments, the spending multiplier is adversely affected by the amount of public debt. A regression model on a panel of 26 EU countries over the last 16 years shows that a 10 percentage point increase in the debt-to-GDP ratio is connected to a slowdown in annual growth rates of 0.28 percentage point. Furthermore, the effectiveness of fiscal spending is adversely affected by the amount of public debt; in particular, when the public debt exceeds 150% of GDP, the growth impact of the deficit might turn negative.
Year of publication: |
2013
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Authors: | Vranceanu, Radu ; Besancenot, Damien |
Published in: |
Applied Economics Letters. - Taylor & Francis Journals, ISSN 1350-4851. - Vol. 20.2013, 8, p. 758-762
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Publisher: |
Taylor & Francis Journals |
Saved in:
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