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

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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  • HAL Id : hal-00728230, version 2

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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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