Does it Pay to Fulfill the Maastricht Convergence Criteria? ― Reflections on the Public Debt and Growth Nexus for Selected European Economies
16 Pages Posted: 21 Oct 2016
Date Written: October 2016
Abstract
This paper empirically studies whether it pays off (in terms of economic growth) to fulfill the convergence criteria on the public budget and participation in the Euro-zone. The analysis is based on data of European economies with a special focus on twelve Euro-zone members and a control group of six non-Euro countries for the years from 1970 to 2014. The results show that growth is higher if the debt to GDP ratio is below 60% compared to values above it. Moreover, a comparison with European economies outside the Euro-zone shows higher growth values for Euro-members than for the control group. Regression estimations reveal a negative relationship between the two variables for the Euro-group. For the control group the relationship is not statistically significant.
Keywords: Economic Growth, Fiscal Policy, Debt, European Union
JEL Classification: O4, H63, E62
Suggested Citation: Suggested Citation