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The Park Place Economist

Abstract

Specifically, this work aims to identify the magnitude by which government debt as a percentage of GDP has affected economic growth in the EMU. This topic is of importance to the EMU as debt crises such as the outstanding one in Greece are not unforeseeable in other highly indebted nations such as Italy, Ireland, Portugal, and Spain. Thus, relevant information on the magnitude by which increases in debt-to-GDP ratios are adversely affecting economic growth across the union is necessary. The claim that sovereign debt is in fact having a negative effect on economic growth in the EU makes reference to the work of Checherita and Rother (2010) of the European Central Bank. This study finds that elevated sovereign debt has a non-linear negative impact on GDP-per-capita growth starting at the 90%-100% threshold. Their research also suggests that the negative growth effect of high government debt might be linear starting at the 70%-80% threshold. The contribution of the research done here is to update and further the body of work on this topic by addressing the magnitude by which sovereign debt has affected economic growth in the EMU.

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