Public debt and economic growth: Further evidence for the euro area

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This paper empirically investigates the short and long run impact of public debt on economic growth. We use annual data from both central and peripheral countries of the euro area (EA) for the 1961-2013 period and estimate a production function augmented with a debt stock term by applying the Autoregressive Distributed Lag (ARDL) bounds testing approach. Our results suggest different patterns across EA countries and tend to support the view that public debt always has a negative impact on the long-run performance of EA member states, whilst its short-run effect may be positive depending on the country.
This paper is based upon work supported by the Instituto de Estudios Fiscales [grants IEF 101/2014 and IEF 015/2017], the Banco de España [grant PR71/15-20229], the Spanish Ministry of Education, Culture and Sport [grant PRX16/00261] and the Spanish Ministry of Economy and Competitiveness [grant ECO2016-76203-C2-2-P]
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