THE IMPACT OF ECONOMIC GROWTH AND TOTAL INVESTMENTS ON PUBLIC DEBT: THE VAR ANALYSIS APPROACH

Ömer Yilmaz

Abstract


The level of public sector debt varies according to the government’s size, scope, and activities. Borrowing positively affects the level of production and employment in the country when it occurs in the right conditions. The benefits and damages of borrowing vary from country to country and may have different consequences. The emergence of opposing views for or against borrowing may be caused by the evidence. In this study, the effects of total investment and economic growth on borrowing were examined with the data of the period 1995-2021. Granger causality and VAR analysis methods were used in the analysis. According to Granger’s evidence, there is a bidirectional relationship between economic growth and public debt. The results show that there is a causal relationship between economic growth and total investment. Affirming variance decomposition and impact-response analysis, most of the shock to government debt is because of economic growth. The impact of the total investment on government debt is also small. This result shows that policymakers should pay attention to the potential risks of public debt when implementing policies to promote economic growth. To keep sound debt management, future policies should emphasize budgetary discipline and they should make no compromises. Using borrowed funds for total investment and the promotion of high-value-added investments are also crucial for maintaining a healthy growth policy.

 

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public borrowing, economic growth, total ınvestments, variance decomposition, ımpulse-response analysis

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References


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DOI: http://dx.doi.org/10.46827/ejae.v7i2.4513

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