European Business Schools Librarian's Group

ESSEC Working Papers,
ESSEC Research Center, ESSEC Business School

No WP1209: The spending multiplier in a time of massive public debt : the euro area case

Radu Vranceanu () and Damien Besancenot ()
Additional contact information
Radu Vranceanu: ESSEC Business School, Postal: Avenue Bernard Hirsch - B.P. 50105, 95021 CERGY PONTOISE Cedex, FRANCE
Damien Besancenot: University of Paris 13 and CEPN

Abstract: This paper argues that in Euro-area economies, where the ECB cannot bail-out …nancially distressed governments, the …scal multiplier is adversely a¤ected 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 a¤ected by the amount of public debt; for a debt-to-GDP ratio above 150% the impact on growth of the …scal stimulus turns negative.

Keywords: Fiscal multiplier; Euro-area; Public debt; Illiquidity; the Great Recession

JEL-codes: C23; E62; G01

13 pages, First version: February 11, 2012. Revised: February 11, 2012. Earlier revisions: February 11, 2012, February 11, 2012.

Full text files 

WP1209.pdf PDF-file

Download statistics

Questions (including download problems) about the papers in this series should be directed to Sophie Magnanou ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:ebg:essewp:dr-12009This page generated on 2024-10-19 15:41:33.