Does Euro area membership affect the relation between GDP growth and public debt?
Dreger, Christian ; Reimers, Hans-Eggert
Deutsches Institut für Wirtschaftsforschung, Berlin
DIW - Berlin
2012
13 p.
EMU ; gross domestic product ; national accounts ; public debt
Discussion Papers
1249
Public finance and taxation
English
Bibliogr.
"We analyse the relationship between the debt to GDP ratio and real per capita GDP growth for the euro area members by distinguishing between periods of sustainable and non-sustainable debt. Thresholds are theory-based and depend on the macroeconomic framework. If the interest rate exceeds nominal output growth, primary budget surpluses are required to achieve a sustainable debt ratio. The negative impact of the debt to GDP ratio is particularly strong for non sustainable ratios and especially relevant for the euro area. This suggests that the participation in monetary union might entail an additional risk for its members."
Digital
The ETUI is co-funded by the European Union. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or the ETUI.