Public Debt, GDP and the Sovereign Debt Laffer Curve: A Country-Specific Analysis for the Euro Area

• Autorzy: Diptes Bhimjee , Emanuel Leão
• Języki publikacji: EN

Abstrakty

EN

This article analyses the non-linear association between public debt and GDP for the Euro Area since the introduction of the euro. It draws on a theoretical concept - the sovereign debt Laffer curve - previously proposed in literature. Our empirical research design contemplates: (i) estimating a public debt Laffer curve for each Euro Area country; (ii) computing country thresholds from the estimated Laffer curves, i.e., the points beyond which further increases in public debt have damaging effects on output; (iii) analyzing the deviations of the current debt position of each country relative to the respective optimal threshold. We conclude that certain Member States have already gone beyond their optimal thresholds, meaning public debt is already limiting output growth. Our contribution to the field consists in the estimation of country-specific thresholds for each Euro Area Member State. To do this we ran a separate quadratic regression for each country, instead of aggregating multiple countries in a single estimation. (original abstract)

Słowa kluczowe

EN

Eurozone; Public debt; Financial crisis; Laffer Curve

PL

Strefa euro; Dług publiczny; Kryzys finansowy; Krzywa Laffer'a

• Czasopismo: Journal of International Studies
• Rocznik: 2020
• Tom: 13
• Numer: nr 3
• Strony: 280--295

Twórcy

autor

Diptes Bhimjee

• Instituto Universitário De Lisboa (ISCTE-IUL), Lisbon, Portugal

autor

Emanuel Leão

• Instituto Universitário De Lisboa (ISCTE-IUL), Lisbon, Portuga

Bibliografia

• Acharya, V., Drechsler, I., & Schnabl, P. (2014). A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk. The Journal of Finance, 69(6), 2689-2739. https://doi.org/10.1111/jofi.12206
• Allen, F., & Carletti, E. (2006). Credit Risk Transfer and Contagion. Journal of Monetary Economics, 53(1), 89-111. https://doi.org/10.1016/j.jmoneco.2005.10.004
• Attinasi, M.-G., Checherita, C., & Nickel, C. (2009). What Explains the Surge in Euro Area Sovereign Spreads During the Financial Crisis of 2007-2009. European Central Bank, Working Paper Series, Working Paper 1131.
• Barrios, S., Iversen, P., Lewandowska, M., & Setzer, R. (2009). Determinants of intra-euro area government bond spreads during the financial crisis. European Commission, Directorate-General for Economic and Financial Affairs, Economic Paper 388.
• Baum A., Checherita-Westphal, C., & Rother, P. (2013). Debt and growth: New evidence for the euro area. Journal of International Money and Finance, 32, 809-821. https://doi.org/10.1016/j.jimonfin.2012.07.004
• Caner, M., Grennes, T., & Koehler-Geib, F. (2010). Finding the Tipping Point - When Sovereign Debt Turns Bad. World Bank, Economic Policy Sector, Policy Research Working Paper 539.
• Cecchetti, S.G., Mohanty, M.S., & Zampolli, F. (2011). The Real Effects of Debt. Bank of International Settlements Working Paper Nº 352.
• Checherita-Westphal, C., & Rother, P. (2012). The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area. European Economic Review, 56(7), 1392-1405. https://doi.org/10.1016/j.euroecorev.2012.06.007
• Chudik, A., Mohaddes, K., & Pesaran, M.H. (2017). Is there a debt-threshold effect on output growth? The Review of Economics and Statistics (MIT Press), 99(1), 135-150.
• Correia, L., & Martins, P. (2019). The European crisis: Analysis of the macroeconomic imbalances in the rescued euro area countries. Journal of International Studies, 12(2), 22-45. https://doi.org/10.14254/2071-8330.2019/12-2/2
• De Grauwe, P., & Ji, Y. (2013). From Panic-Driven Austerity to Symmetric Macroeconomic Policies in the Eurozone. Journal of Common Market Studies, 51(Annual Review), 31-41. https://doi.org/10.1111/jcms.12042
• Eberhardt, M., & Presbitero, A.F. (2015). Public debt and growth: heterogeneity and non-linearity. Journal of International Economics, 97(1), 45-58. http://dx.doi.org/10.1016/j.jinteco.2015.04.005
• Égert, B., 2015. The 90% public debt threshold: the rise and fall of a stylized fact. Applied Economics, 47(34-35), 3756-3770. https://doi.org/10.1080/00036846.2015.1021463
• Ejsing, J. W., & Lemke, W. (2009). The Janus-Headed Salvation: Sovereign and Bank Credit Risk Premia During 2008-2009. European Central Bank, Working Paper Series, Working Paper 1127.
• European Council (2012). Treaty on Stability, Coordination and Governance in The Economic And Monetary Union.
• Gogas, P., Plakandaras, V., & Papadimitriou, T. (2014). Public debt and private consumption in OECD countries. The Journal of Economic Asymmetries, 11(2014), 1-7. http://dx.doi.org/10.1016/j.jeca.2014.03.001
• Gujarati, D. N. (2003). Basic Econometrics (Fourth edition). United States: McGraw-Hill Higher Education.
• Hellwig, M. (2011). Quo Vadis, Euroland? European Monetary Union between Crisis and Reform. In F. Allen, E. Carletti, & G. Corsetti (Eds.), Life in the Eurozone With or Without Sovereign Default? (pp. 59-76). Philadelphia: FIC Press and Wharton Financial Institutions Center.
• Insukindro (2018). The Effect of Twin Shock on Fiscal Sustainability in Indonesia. Economics and Sociology, 11(1), 75- 84. https://doi.org/10.14254/2071-789X.2018/11-1/5
• Krugman, P. (1988). Financing vs. Forgiving a Debt Overhang. National Bureau of Economic Research (NBER), Working Paper 2486.
• Kumar, M. S., & Woo, J. (2010). Public Debt and Growth. International Monetary Fund, Working Paper WP/10/174.
• Kusairi, S., Maulina, V., & Margaretha, F. (2019). Public debt and private consumption in Asia Pacific countries: Is there evidence for Ricardian equivalence? Journal of International Studies, 12(1), 50-64. https://doi.org/10.14254/2071-8330.2019/12-1/3
• Petrovic, A., & Tutsch, R. (2009). National Rescue Measures In Response To The Current Financial Crisis. European Central Bank, Legal Working Paper Series, Working Paper No 8.
• Ramos-Herrera, M. C., & Sosvilla-Rivero, S. (2017). An empirical characterization of the effects of public debt on economic growth. Applied Economics, 49(35), 3495-3508. https://doi.org/10.1080/00036846.2016.1262522
• Reinhart, C.M., & Rogoff, K.S. (2010). Growth in a Time of Debt. American Economic Review, 100(2), 573-578. https://doi.org/10.1257/aer.100.2.573
• Sachs, J. (1990). A Strategy for Efficient Debt Reduction. The Journal of Economic Perspectives, 4(1), 19-29.
• Tung, L. T. (2020). Can public debt harm social development? Evidence from the Asian-Pacific region. Journal of International Studies, 13(2), 48-61. https://doi.org/10.14254/2071-8330.2020/13-2/4
• Whelan, K. (2011). Ireland's Sovereign Debt Crisis. In F. Allen, E. Carletti, & G. Corsetti (Eds.). Life in the Eurozone With or Without Sovereign Default? (pp. 41-58). Philadelphia: FIC Press and Wharton Financial Institutions Center.

Identyfikatory

DOI

10.14254/2071-8330.2020/13-3/18