Short-Run and Long-Run Effects of Public Debt on Economic Performance: Evidence from EMU Countries

Abstract

This paper contributes to the literature by examining the possible influence of public debt on economic performance, using data from both central and peripheral countries of the European Economic and Monetary Union for the 1960-2012 period. To this end, a simple aggregate production function augmented for public debt is estimated using the ARDL bounds testing approach. Our findings tend to support the view that the level of public debt always has a negative impact on the long-run performance of EMU countries, whilst its short-run effect may be positive in some specific cases.

Keywords: Public debt, economic growth, bounds testing, euro area, peripheral EMU countries, central EMU countries.

JEL Classification: C22, F33, H63, O40, O52.