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The spending multiplier in a time of massive public debt : the euro area case

Radu Vranceanu
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Abstract

This paper argues that in Euro-area economies, where the ECB cannot bail-out …nancially distressed governments, the …scal multiplier is adversely affected by the amount of public debt. A regression model on a panel of 26 EU countries over the period 1996-2011 shows that a 10 percentage point increase in the debt-to-GDP ratio is connected to a slowdown in annual growth rates of 0.28 percentage point. Furthermore, the e¤ectiveness of …scal spending is adversely affected by the amount of public debt; for a debt-to-GDP ratio above 150% the impact on growth of the …scal stimulus turns negative.
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Dates and versions

hal-00728230 , version 1 (05-09-2012)
hal-00728230 , version 2 (14-11-2012)

Identifiers

  • HAL Id : hal-00728230 , version 2

Cite

Radu Vranceanu, Damien Besancenot. The spending multiplier in a time of massive public debt : the euro area case. 2012. ⟨hal-00728230v2⟩
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