THE IMPACT OF PUBLIC DEBT ON ECONOMIC GROWTH

Abstract

The general upward trend of public debt at global level is perceived to have a significant economic impact. This paper analyses the degree in which the public debt evolution in the European Union countries over the last two decades influences economic growth. The average results show moderate to low levels of correlation degrees. The modest impact between the two measures might be the consequence of the budgetary policies implemented in the EU with respect to the limits imposed to the public amounts borrowed especially in times of crises. The increased discipline in the use of public loans led to a more rigorous spending and to a more accurate analysis of the real needs bringing forward public investments. Nevertheless, the correlation in the countries with high public debts, as in the case of Greece, is more obvious, leading to the conclusion that economic recessions are also consequences of higher indebtedness levels.

Keywords

• public debt
• economic growth
• correlation analysis
• financial crisis
• budget deficit