Original scientific paper

https://doi.org/10.3326/pse.41.2.2

Institutions, public debt and growth in Europe

Klaus Masuch ; European Central Bank, Frankfurt am Main, Germany
Edmund Moshammer ; European Stability Mechanis, Luxembourg
Beatrice Pierluigi orcid.org/0000-0003-0905-6409 ; European Central Bank, Frankfurt am Main, Germany

Abstract

This paper provides empirical evidence that supports the view that the quality of institutions is an important determinant of long-term growth in European countries. It shows that an initial high government debt level coupled with institutional quality below the EU average tends to be associated with particularly poor longterm real growth performance. Interestingly, the detrimental effect of high debt levels on long-term growth seems cushioned by the presence of very sound institutions. The paper offers some evidence that sound institutions may be particularly important for long-term growth in countries in which the exchange rate tool is no longer available and less so in countries with flexible exchange rate regimes. The empirical findings on the importance of institutions are robust to various measures of output growth, different measures of institutional indicators, different sample sizes, different country groupings and to the inclusions of additional control variables.

Keywords

quality of institutions and real growth; real convergence in the EU; public governance; structural reforms; public debt; panel estimates

Hrčak ID:

182978

URI

https://hrcak.srce.hr/182978

Publication date:

14.6.2017.

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