Public Capital Expenditure and Debt Dynamics: Evidence from the EU

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Main author: Bhatt Hakhu, Antra
Other authors: Piergallini, Alessandro
Scaramozzino, Pasquale
Format: Journal Article           
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id eprints-23193
recordtype eprints
institution SOAS, University of London
collection SOAS Research Online
language English
language_search English
topic HA Statistics
HG Finance
HJ Public Finance
description This paper investigates the relationship between public capital expenditure and public debt in the European Union (EU) on a panel of fifteen countries in 1980-2013. We find robust evidence of a negative cointegrating relation, whereby increases in the capital expenditure-GDP ratio cause reductions in the long-run debt-GDP ratio. Our empirical results suggest that current EU fiscal austerity can trigger upward debt spirals if cuts in total expenditure disregard its composition. The findings appear to give support to the view, consistent with the “golden rule of public finance”, that EU fiscal rules should allow for higher levels of capital expenditure in order to foster debt consolidation through growth dividends.
format Journal Article
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 EU
publisher il Mulino
publishDate 2016
url https://eprints.soas.ac.uk/23193/

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