Open AccessReassessing the public debt threshold in the EU: Do macroeconomic conditions matter?
Author(s) -
Filip Ostrihoň,
Mária Širaňová,
Menbere Workie
Publication year - 2023
Publication title -
panoeconomicus
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.289
H-Index - 14
eISSN - 2217-2386
pISSN - 1452-595X
DOI - 10.2298/pan181114007o
Subject(s) - economics , debt , panel data , econometrics , quantile regression , estimator , debt ratio , consumption (sociology) , monetary economics , macroeconomics , statistics , mathematics , social science , sociology
This paper explores the relationship between debt and growth in the 28 EU member states over the 1995-2014 period using an interacted panel data estimator in standard augmented Solow growth regression. The nonlinear nature of the debt-growth relationship allows for computation of the optimal turning point given the set of four conditioning variables. Additionally, the heterogeneity in EU members? growth rates is explored by a panel data quantile regression estimator with nonadditive fixed effects. The results suggest that while additional government consumption decreases the level of growth-maximizing debt, the level of private debt has a positive impact on the optimal turning point. On average, estimated optimal debt thresholds are located in the vicinity of the policy-set 60% debt-to-GDP ratio; however, the observed high heterogeneity in the underlying data results in wide confidence intervals.