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

Radu Vranceanu and Damien Besancenot

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Abstract: This paper argues that in Euro-area economies, where the ECB cannot bail-out nancially distressed governments, the scal multiplier is adversely affected 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 affected 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)
Date: 2012-11-14
Note: View the original document on HAL open archive server: https://essec.hal.science/hal-00728230v2
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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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