Threshold Effects of Public Debt on Economic Growth in the Euro Area Economies

Topal, Pinar

doi:10.2139/ssrn.2421147

Cited by 4 publications

(4 citation statements)

References 25 publications

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“…The estimated threshold for newly democratized African countries is in line with the threshold found by Ndoricimpa (2020), where they found the threshold ranging from 62% to 66% of GDP, whereas Reinhart and Rogoff (2010) found that public debt is in the medium-high range (between 60% and 90%). While for newly democratized European countries, our estimated threshold is in line with the threshold of 71.90% of GDP documented by Besnik et al (2020) for European transition countries, Topal (2014) found the estimated threshold values to range from 71.66% to 80.21% of GDP for e12 zone economies. The first wave (U-shape) and the second wave (inverted U-shape) indicate that the impact of public debt on economic growth is in the second wave now, with two transitions that form an S-shape as it goes beyond the Laffer curve and the Kuznets inverted U-shape of development.…”

Section: Concluding and Policy Recommendationssupporting

confidence: 91%

“…According to Güris (2019), the traditional unit root tests display a tendency to be nonstationary in the case of structural breaks and NRN. On the other hand, the study further omitted the unit root test, following the argument made by Ndoricimpa (2020), Reinhart and Rogoff (2010), Besnik et al (2020) and Topal (2014). According to descriptive statistics, these nations' average total public debt is approximately 13.35%, 4.19% and 3.19%, respectively, while economic growth is around 43.88%.…”

Section: Discussionmentioning

confidence: 97%

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The dynamic effect of public debt on economic growth in the era of Macroprudential policy regime: a Bayesian approach

Ngcobo,

Zungu,

Nkomo

2023

IJDI

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Purpose This study aims to test the dynamic impact of public debt and economic growth on newly democratized African countries (South Africa and Namibia) and compare the findings with those of newly democratized European countries (Germany and Ukraine) during the period 1990–2022. Design/methodology/approach The methodology involves three stages: identifying the appropriate transition variable, assessing the linearity between public debt and economic growth and selecting the order m of the transition function. The linearity test helps identify the nature of relationships between public debt and economic growth. The wild cluster bootstrap-Lagrange Multiplier test is used to evaluate the model’s appropriateness. All these tests would be executed using the Lagrange Multiplier type of test. Findings The results signify the policy switch, as the authors find that the relationship between public debt and economic growth is characterized by two transitions that symbolize that the current stage of the relationship is beyond the U-shape; however, an S-shape. The results show that for newly democratized African countries, the threshold during the first waves was 50% of GDP, represented by a U-shape, which then transits to an inverted U-shape with a threshold of 65% of GDP. Then, for the European case, it was 60% of GDP, which is now 72% of GDP. Originality/value The findings suggest that an escalating level of public debt has a negative impact on economic growth; therefore, it is important to implement fiscal discipline, prioritize government spending and reduce reliance on debt financing. This can be achieved by focusing on revenue generation, implementing effective taxation policies, reducing wasteful expenditures and promoting investment and productivity-enhancing measures.

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Section: Concluding and Policy Recommendationssupporting

confidence: 91%

Section: Discussionmentioning

confidence: 97%

The dynamic effect of public debt on economic growth in the era of Macroprudential policy regime: a Bayesian approach

Ngcobo,

Zungu,

Nkomo

2023

IJDI

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“…Again, investment and spending have a negative two-way causality with GDP in the short run but they have a positive two-way causality in the long run. approach After using this approach on a sample of the economies of developed countries A study by Topal (2014) focused on the implications for public debt growth by introducing a dynamic panel threshold model by calculating regime-dependent intercepts. It studied 12 economies in the eurozone during the period 1980-2012.…”

Section: Empirical Previewsmentioning

confidence: 99%

A Sovereign Debts and Gdp in Piigs Countries: A Panel Smooth Transition Approach

Djaballah

2024

Preprint

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It occurred at the end of 2008, and its effects quickly reached many countries in record time and exploded as a public debt in the European Union and the Eurozone. The countries most affected by this financial crisis were Portugal, Ireland, Italy, Greece and Spain which were named as PIIGS countries in Europe. The impact of public debt on economic growth in PIIGS countries is analyzed in this study. This paper focused on arriving at empirical evidence of the existence of a non-linear effect of external debt on GDP in PIIGS countries This study used panel data models using non-linear panel threshold regression (PSTR) approaches for a sample of European countries represented by PIIGS From 1990 to 2022. Several conclusions were drawn from this study. First, the use of a regime switching test based on the Hansen approach confirmed the existence of a non-linear relationship between external debt and GDP and the analysis showed that the threshold and its effect do not vary with the level of economic development. In the mentioned countries, in addition, the results showed a negative impact of external debt on the growth of these countries, mainly due to the size of the debt and the structural deficit in the balance of payments and the primary budget. JEL Classification : C21 C33 C58 H63 E62

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“…They found that a threshold level between 82 and 91 percent of GDP was reached, with a 1 percentage point average rise in public debt cutting the GDP growth rate by 0.012 percentage points next year and reducing the average yearly growth rate over the next five years by 0.028 percentage points. Mersinger and Topal (2014) investigated the relationship between debt and growth in 12 euro area nations using two-stage least squares estimates and a tissue threshold model. The authors found that debt levels up to 71.66 percent favorably impact growth.…”

Section: Studies On Nonlinear Effects Of Public Debt On Economic Growthmentioning

confidence: 99%

Asymmetric Impacts of Public Debt on Economic Growth: Empirical Evidence From Vietnam

Nguyen¹,

Nguyen²

2023

J. Professional Business Review

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Purpose: The objective studies the influence of government debt on the expansion of the Vietnamese economy was the subject of the research presented in this article. Theoretical framework: Most governments in developing nations have budget deficits due to excessive spending and inadequate revenue. When the government chooses to pay the budget deficit through borrowing, it incurs a liability known as public debt and public debt on economic growth. Design/methodology/approach: In regression analysis involving time series data, if the regression model contains the variables' present values and the lagged values (past values), this model is known as the lagged distribution model. If the model's explanatory variables include one or more lagged values of the dependent variable, the model is called the autoregressive model. Nonlinear Auto Regressive Distributed Lag regression was applied. Findings: The findings reveal that government debt has a considerable and disproportionate effect on sustained economic growth in the short and long run using a Nonlinear Autoregressive Distributed Lag (NARDL) model with quarterly data over twenty years beginning in 2000. Research, Practical & Social implications: The results indicate a disproportional association between public sector debt levels and short- and long-term economic growth. The results are consistent with recent empirical studies showing a nonlinear relationship between some nations' public debt and economic development. Originality/value: Government debt should support short- and long-term economic growth through funding production. Consequently, government debt should not burden the economy when the high amount of debt exceeds the capacity to repay.

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Threshold Effects of Public Debt on Economic Growth in the Euro Area Economies

Cited by 4 publications

References 25 publications

The dynamic effect of public debt on economic growth in the era of Macroprudential policy regime: a Bayesian approach

The dynamic effect of public debt on economic growth in the era of Macroprudential policy regime: a Bayesian approach

A Sovereign Debts and Gdp in Piigs Countries: A Panel Smooth Transition Approach

Asymmetric Impacts of Public Debt on Economic Growth: Empirical Evidence From Vietnam

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