Does it Pay to Fulfill the Maastricht Convergence Criteria? - Reflections on the Public Debt and Growth Nexus for Selected European Economies

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: O400, H630, E620