ECONOMIC CONSEQUENCES OF PUBLIC DEBT. THE CASE OF CENTRAL AND EASTERN EUROPEAN COUNTRIES
ECONOMIC CONSEQUENCES OF PUBLIC DEBT. THE CASE OF CENTRAL AND EASTERN EUROPEAN COUNTRIES

Summary/Abstract: The paper aims to empirically assess, using panel data estimation techniques, the effects of public indebtedness on economic growth for a group of 11 Central and Eastern European countries and over the period 1994-2013. Our hypothesis is that, although public indebtedness may fuel economic growth, once public debt breaches a certain threshold the effects are reversed and public indebtedness negatively affects GDP growth rates. The results of our study confirm this kind of relationship, with a maximum debt threshold for all countries of about 45-55% of GDP, lower for the less developed (like Romania and Bulgaria) and higher for the more developed ones. Also, the threshold for Central and Eastern European countries is found to be lower than the one identified in other empirical studies for developed EU countries, as the former enjoy lower credibility, higher vulnerability to shocks and depend more on external capital transfers.

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