Public debt and economic growth: Further evidence for the euro area

Abstract

This paper empirically investigates the short and long run impact of public debt on economic growth. We use annual data from both central and peripheral countries of the euro area (EA) for the 1961-2013 period and estimate a production function augmented with a debt stock term by applying the Autoregressive Distributed Lag (ARDL) bounds testing approach. Our results suggest different patterns across EA countries and tend to support the view that public debt always has a negative impact on the long-run performance of EA member states, whilst its short-run effect may be positive depending on the country.