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On the bi-directional causal relationship between public debt and economic growth in EMU countries

Marta Gómez-Puig () and Simon Sosvilla-Rivero ()

No 15-06, Working Papers from Asociación Española de Economía y Finanzas Internacionales

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; euro area; 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)
Pages: 30 pages
Date: 2015-06
New Economics Papers: this item is included in nep-eec and nep-fdg
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