Indebtedness in the EU: A Drag or a Catalyst for Growth?

Mika, Alina; Zumer, Tina

doi:10.2139/ssrn.3092217

Cited by 7 publications

(14 citation statements)

References 13 publications

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“…The econometrical approach used in this paper is based on the short-to medium-term effects method used in the paper by Mika and Žumer (2017). For the purposes of this paper, a growth model was constructed that follows the specifications of the model of the aforementioned authors, which is common in literature exploring debt and growth nexus (e.g.…”

Section: Methodology and Datamentioning

confidence: 99%

“…Cecchetti et al, 2011). Similarly, to Mika and Žumer (2017), the author of this paper was constrained by the availability of data beyond 1995, therefore it was necessary to choose three-year overlapping forward averages of the real GDP per capita growth rate rather than five-year forward-looking averages, which would result in more observations being lost at the end of the period in an already relatively short period of observation.…”

Section: Methodology and Datamentioning

confidence: 99%

“…Similarly, the authors' imprecise and non-robust estimate of the threshold level of household debt is around 85% of GDP. Mika and Žumer (2017) based their regression on a similar econometric model and approach to that of Ceccheti et al ( 2011) on a sample of 25 European Union countries between 1995 and 2015. However, they used a novel approach in researching debt and economic growth relationships by using the debt ratio with gross disposable income instead of GDP.…”

Section: Empirical Evidencementioning

confidence: 99%

“…This question has been enlightened by many researchers in the past, therefore, the author of this paper decided to carry out his own research on this pressing issue. In this study, an extension is made of the paper by Mika & Žumer (2017), which follows the Cecchetti et al (2011) model specification.…”

Section: Introductionmentioning

confidence: 99%

“…This paper tackles the question of the existence of a turning point, at which the negative effects of debt start to prevail in the economic process. In the sample of European Union countries in the period from 1995 to 2019, the author of this paper investigated the presence of threshold effects of government, non-financial corporate and household debt on medium-term growth following the paper by Mika and Žumer (2017). The author first confirmed the concave-shaped relationship between public debt and growth with a threshold of 111.6% of GDP, based on Eurostat debt-to-GDP data.…”

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confidence: 99%

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Does Debt Have Threshold Effects on Medium-Term Growth? Evidence from European Union Countries

Fir¹

2022

Naše Gospodarstvo/Our Economy

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Debt has become an important factor in economic activity and its extent has incentivized many researchers to incorporate it into contemporary growth models. On the positive side, debt has the ability to smoothen private consumption, firms’ investment and government expenditure in relation to their corresponding income, subsequently leading to better capital allocation. However, the history of debt defaults and lessons from European sovereign debt crises, which were accompanied by strict austerity measures, have warned us about the danger of debt overhang and unsustainable debt burdens. This paper tackles the question of the existence of a turning point, at which the negative effects of debt start to prevail in the economic process. In the sample of European Union countries in the period from 1995 to 2019, the author of this paper investigated the presence of threshold effects of government, non-financial corporate and household debt on medium-term growth following the paper by Mika and Žumer (2017). The author first confirmed the concave-shaped relationship between public debt and growth with a threshold of 111.6% of GDP, based on Eurostat debt-to-GDP data. In contrast, private debt was found to have first lag effects with an accompanied convex-shaped relationship between private debt and growth and with a corresponding threshold of 149.8% of GDP. Next, the author divided private debt into non-financial corporate and household debt to investigate a more detailed relationship between debt and growth. Corresponding to the Global Debt Database, the concave-shaped relationship between public debt and growth was confirmed with a threshold of 104.8% of GDP. Both of the investigated types of private debt confirmed the previously explored lagged impact on medium-term growth and a convex-shaped relationship between non-financial corporate and household debt and growth. The threshold of non-financial corporate debt stands at 138.3% of GDP, while that for household debt is 145.1% of GDP. Considering the presence of thresholds may offer an important message to economic policymakers, as timely and suitable governance can lead to either higher economic growth or prevent adverse effects of excessive indebtedness.

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Section: Methodology and Datamentioning

confidence: 99%

Section: Methodology and Datamentioning

confidence: 99%

Section: Empirical Evidencementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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confidence: 99%

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