The Relationship between Government Debt and Economic Sentiment

Abstract

In recent years, the application of sentiment in the economic field has become increasingly important. In the last decades, researchers have mainly explored the macroeconomic impact of sentiment. For example, the prediction of sentiment on unemployment, GDP, and private consumption. Government debt has been a hot topic due to increasing debt in many countries around the world for a long time. Many researchers have argued that declining confidence can lead to a potential debt crisis. But little research has been done in the opposite direction, i.e., do changes in government debt affect economic sentiment (e.g., consumer confidence)? Our paper will provide an in-depth insight into the correlation between the two factors, based on data from the Czech Republic.