The spending multiplier in a time of massive public debt: the euro area case

Radu Vranceanu and Damien Besancenot

No WP1209, ESSEC Working Papers from ESSEC Research Center, ESSEC Business School

Abstract: This paper argues that in Euro-area economies, where the ECB cannot bail-out …nancially distressed governments, the …scal multiplier is adversely a¤ected by the amount of public debt. A regression model on a panel of 26 EU countries over the period 1996-2011 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 e¤ectiveness of …scal spending is adversely a¤ected by the amount of public debt; for a debt-to-GDP ratio above 150% the impact on growth of the …scal stimulus turns negative.

Keywords: Fiscal multiplier; Euro-area; Public debt; Illiquidity; the Great Recession (search for similar items in EconPapers)
JEL-codes: C23 E62 G01 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2012-02-11, Revised 2012-02-11
New Economics Papers: this item is included in nep-eec and nep-pbe
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http://hal-essec.archives-ouvertes.fr/docs/00/75/19/14/PDF/WP1209.pdf (application/pdf)

Related works:
Journal Article: The spending multiplier in a time of massive public debt: The Euro-area case (2013)
Working Paper: The spending multiplier in a time of massive public debt: the euro area case (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:essewp:dr-12009

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