Public Capital Expenditure and Debt Dynamics: Evidence from the European Union

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Main author: Bhatt Hakhu, Antra
Other authors: Piergallini, Alessandro
Scaramozzino, Pasquale
Format: Monographs and Working Papers           
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id eprints-18819
recordtype eprints
institution SOAS, University of London
collection SOAS Research Online
language English
language_search English
description This paper investigates the relationship between public capital expenditure and public debt in the European Union (EU), relying on a panel of fifteen countries over the sample period 1980-2013. We find robust evidence of a negative cointegrating relation, according to which increases in the capital expenditure-GDP ratio cause reductions in the debt-GDP ratio in the long run. Our empirical results suggest that current EU fiscal austerity can trigger upward debt spirals if cuts in total expenditure disregard its composition. Consistently with the “golden rule of public finance”, EU fiscal rules should allow for higher levels of capital expenditure in order to foster debt consolidation through growth dividends.
format Monographs and Working Papers
author Bhatt Hakhu, Antra
author_facet Bhatt Hakhu, Antra
Piergallini, Alessandro
Scaramozzino, Pasquale
authorStr Bhatt Hakhu, Antra
author_letter Bhatt Hakhu, Antra
author2 Piergallini, Alessandro
Scaramozzino, Pasquale
author2Str Piergallini, Alessandro
Scaramozzino, Pasquale
title Public Capital Expenditure and Debt Dynamics: Evidence from the European Union
publisher CeFiMS
publishDate 2014
url https://eprints.soas.ac.uk/18819/

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