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Does it Pay to Fulfill the Maastricht Convergence Criteria? - Reflections on the Public Debt and Growth Nexus for Selected European Economies

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  • Bettina Bökemeier
  • Christiane Clemens

Abstract

This paper empirically studies whether it pays off (in terms of economic growth) to fulfill the convergence criteria on the public budget and participation in the Euro-zone. The analysis is based on data of European economies with a special focus on twelve Euro–zone members and a control group of six non–Euro countries for the years from 1970 to 2014. The results show that growth is higher if the debt to GDP ratio is below 60 % compared to values above it. Moreover, a comparison with European economies outside the Euro–zone shows higher growth values for Euro–members than for the control group. Regression estimations reveal a negative relationship between the two variables for the Euro–group. For the control group the relationship is not statistically significant.

Suggested Citation

  • Bettina Bökemeier & Christiane Clemens, 2016. "Does it Pay to Fulfill the Maastricht Convergence Criteria? - Reflections on the Public Debt and Growth Nexus for Selected European Economies," CESifo Working Paper Series 6161, CESifo.
    • Handle: RePEc:ces:ceswps:_6161
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    References listed on IDEAS

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    1. Checherita-Westphal, Cristina & Rother, Philipp, 2010. "The impact of high and growing government debt on economic growth: an empirical investigation for the euro area," Working Paper Series 1237, European Central Bank.
    2. Dreger, Christian & Reimers, Hans-Eggert, 2013. "Does euro area membership affect the relation between GDP growth and public debt?," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 481-486.
    3. Jaejoon Woo & Manmohan S. Kumar, 2015. "Public Debt and Growth," Economica, London School of Economics and Political Science, vol. 82(328), pages 705-739, October.
    4. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    5. Bettina Fincke & Alfred Greiner, 2015. "Public Debt and Economic Growth in Emerging Market Economies," South African Journal of Economics, Economic Society of South Africa, vol. 83(3), pages 357-370, September.
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    Cited by:

    1. Halebić Jasmin & Moćević Amina, 2020. "Analysis of Public Debt at Subnational Government Levels: Evidence from Cantons in the Federation of Bosnia and Herzegovina," South East European Journal of Economics and Business, Sciendo, vol. 15(2), pages 109-123, December.
    2. Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2017. "Heterogeneity in the debt-growth nexus: Evidence from EMU countries," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 470-486.
    3. D'Andrea, Sara, 2022. "A Meta-Analysis on the Debt-Growth Relationship," MPRA Paper 114409, University Library of Munich, Germany.
    4. D'Andrea, Sara, 2023. "Innovation, Public Debt and Monetization: an Empirical Analysis," MPRA Paper 117520, University Library of Munich, Germany.

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    More about this item

    Keywords

    economic growth; fiscal policy; debt; European Union;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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