Sovereign Debt and Economic Growth Revisited: The Role of (Non-)Sustainable Debt Thresholds

Nikolaos Antonakakis

Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics

Abstract: Contributing to the contentious debate on the relationship between sovereign debt and economic growth, I examine the role of theory-driven (non-)sustainable debt-ratios in combination with debt-ratio thresholds on economic growth. Based on both dynamic and non-dynamic panel data analyses in the euro area (EA) 12 countries over the period 1970-2013, I find that non-sustainable debt-ratios above and below the 60% threshold, have a detrimental effect on short-run economic growth, while sustainable debt-ratios below the 90% threshold exert a positive influence on short-run economic growth. In the long-run, both non-sustainable and sustainable debt-ratios above the 90% threshold, as well as non-sustainable debt-ratios below the 60% compromise economic growth. Robustness analysis supports these findings, and provides additional evidence of a positive effect of sustainable debt-ratios below the 60% threshold, as predicated by the Maastricht Treaty criterion, on (short- and long-run) economic growth. Overall, these results suggest that debt sustainability in addition to debt non-linearities should be considered simultaneously in the debt-growth nexus. In addition, the results indicate the importance of a timely reaction of fiscal policy in countries with non-sustainable debts, as implied by fiscal rules, in an attempt to ensure fiscal sustainability and, ultimately, promote long-run economic growth.

Keywords: Government debt; growth; sustainability; threshold; government budget constraint (search for similar items in EconPapers)
JEL-codes: C23 E62 F43 H63 O40 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-eec, nep-fdg, nep-gro and nep-mac
Note: PDF Document
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
https://epub.wu.ac.at/4321/1/wp187.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden (https://epub.wu.ac.at/4321/1/wp187.pdf [302 FOUND]--> https://research.wu.ac.at/en/publications/311f6560-d135-4f03-881a-f04dbca9bd6c)

Related works:
Working Paper: Sovereign Debt and Economic Growth Revisited: The Role of (Non-)Sustainable Debt Thresholds (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wiw:wiwwuw:wuwp187

Access Statistics for this paper

More papers in Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics Welthandelsplatz 1, 1020 Vienna, Austria.
Bibliographic data for series maintained by Department of Economics ().