The Role of government debt on economic growth

Mestrado em EconomiaIn our research, we study the effect of public debt on economic growth for annual and 5-year average growth rates, as well as the existence of non-linearity effects of debt on growth for 14 European countries since 1970 until 2012. We also consider debt-to-GDP ratio interactions with monetary, public finance, institutional and macroeconomic variables. We conclude that debt has a negative impact of -0.01% for each increment of 1% of public debt, although debt service has a 10 times worse effect on growth. We reach average thresholds for annual and 5-year average of 75% and 74%, respectively. Belonging to Eurozone has a detrimental effect of at least -0.5% for real per capita GDP, and banking crisis is the most harmful crisis for the growth phenomena