The causal relationship between debt and growth in EMU countries

Marta Gómez-Puig () and Simon Sosvilla-Rivero

Journal of Policy Modeling, 2015, vol. 37, issue 6, 974-989

Abstract: New evidence is presented on the possible existence of bi-directional causal relationships between public debt and economic growth in both central and peripheral countries of the European Economic and Monetary Union. We test for heterogeneity in the bi-directional Granger-causality across both time and space during the period between 1980 and 2013. The results suggest evidence of a “diabolic loop” between low economic growth and high public debt levels in Spain after 2009. For Belgium, Greece, Italy and the Netherlands debt has a negative effect over growth from an endogenously determined breakpoint and above a debt threshold ranging from 56% to 103% depending on the country.

Keywords: Public debt; Economic growth; Granger-causality; Peripheral EMU countries; Central EMU countries (search for similar items in EconPapers)
JEL-codes: C22 F33 H63 O40 O52 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:37:y:2015:i:6:p:974-989

DOI: 10.1016/j.jpolmod.2015.09.004

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