Original scientific paper
NONOLINEAR EFFECT OF THE PUBLIC DEBT ON THE GROWTH OF GDP: THE CASE OF CROATIA
Tihana Škrinjarić
orcid.org/0000-0002-9310-6853
; Sveučilište u Zagrebu
Zrinka Orlović
Abstract
This research focuses on effects of public debt on economic growth in Croatia. Based upon previous existing literature, this study emphasizes the non linear relationship between public debt and economic growth. Such study has not yet been carried out for Croatia. The empirical research uses quarterly data from January 2000 to April 2016 in order to estimate different specifications of the aforementioned nonlinear relationship. One of the goals is to determine the turning point of the public debt effect. In that way, we want to test the hypothesis that the effects of public debt vary with relation to the share of public debt in GDP. Moreover, the consequences of such relation mean that policy makers need to adjust the structure, size and purpose of public indebtedness in order to obtain long-term sustainable growth. The results show that the intensity of the effect of public debt on economic growth differs with respect to the size of the share of public debt in GDP. Furthermore, the robustness of the results has been checked by adding specific economic variables in the models. Also, results predict that Croatia is in a state where the effect of public debt on economic growth is negative. In that way, it is recommended for economic policy makers to take actions regarding fiscal consolidation and lowering (foreign) indebtedness
Keywords
public debt; economic growth; nonlinear model; sustainability of growth; Croatia
Hrčak ID:
191289
URI
Publication date:
21.12.2017.
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