What happens to the relationship between public debt and economic growth in European countries?

Abstract

The importance of publicdebt level is mainly related with its impact on economic growth. We analyze the relationship between public debt and economic growth in the core and periphery European countries. We find that higher levels of debt-to-GDP ratio have a negative impact on economic growth in all countries, with Belgium and Ireland being the most affected economies in each type of countries. Moreover, we obtain that economic growth reduces debt-to-GDP ratio and, consequently, economic growth is essential to reduce public debt and improves the general economic situation.