Abstract
This article shows that there is no government debt threshold in Hungary and Slovakia and that the respective government debt thresholds in Czechia and Poland are estimated to be 27.51% and 46.86%, which are far smaller than the 90% threshold suggested by Reinhart and Rogoff. Hence, the Reinhart-Rogoff threshold is not applicable to Czechia, Hungary, Poland and Slovakia.
Highlights
During the 2008-2009 global financial crisis, many countries pursued fiscal expansion in order to rescue their economies
The growth rate of real gross domestic product (GDP) or labor employment is expressed as a percent
This article has studied the impact of the government debt ratio on the growth rate of real GDP for Czechia, Hungary, Poland and Slovakia using an extended production function
Summary
During the 2008-2009 global financial crisis, many countries pursued fiscal expansion in order to rescue their economies. During 2008-2009, Czechia increased the government debt ratio from 28.25% to 33.56%. Whether an increase in the government debt ratio raises or haram the growth rate of real GDP has been studied extensively. Reinhart and Rogoff (2010a, 2010b) show that the turning point or threshold of the government debt ratio is 90%. The objective of this paper is to determine whether the Reinhart-Rogoff proposal may apply to four selected Central European countries, namely, Czechia, Hungary, Poland and Slovakia. Is it possible to have a threshold or turning point of 90% for these four countries with debt ratios less than 90%? The GARCH model is used in order to detect possible conditional heteroskedasticity in time series data
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