On the Bi-Directional Causal Relationship between Public Debt and Economic Growth in EMU Countries

32 Pages Posted: 11 May 2015

See all articles by Marta Gómez-Puig

Marta Gómez-Puig

Economic Theory Department. University of Barcelona

Simon Sosvilla-Rivero

UCM Institute for Economic Analysis

Date Written: May 11, 2015

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.

JEL Classification: C22, F33, H63, O40, O52

Suggested Citation

Gómez-Puig, Marta and Sosvilla-Rivero, Simon, On the Bi-Directional Causal Relationship between Public Debt and Economic Growth in EMU Countries (May 11, 2015). Available at SSRN: https://ssrn.com/abstract=2604869 or http://dx.doi.org/10.2139/ssrn.2604869

Marta Gómez-Puig

Economic Theory Department. University of Barcelona ( email )

Diagonal 690
Barcelona, 08034
Spain
34-93-4020113 (Phone)
34-93-4039082 (Fax)

Simon Sosvilla-Rivero (Contact Author)

UCM Institute for Economic Analysis ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain
+34913932626 (Phone)

HOME PAGE: http://www.ucm.es/info/ecocuan/ssr/

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