The Effect of Fiscal Deficits on Economic Growth: Evidence from Eurozone Countries
The Effect of Fiscal Deficits on Economic Growth: Evidence from Eurozone Countries

Summary/Abstract: Over the last decade, no issue in economic policy has caused greater controversy than the effects of fiscal deficits on economic growth. Fiscal deficits have been a significant cause of worry for many developed countries, notably the Eurozone. Even if short stimulants were justified, particularly after the crises of 2008-2009 in response to the global financial crisis, they have resulted in chronic fiscal deficits, growing debt, and depleted fiscal buffers in the medium to long term. This paper investigates, using STATA econometrics, how fiscal deficits affect the economic growth rate in Eurozone Countries. We use annual data for Eurozone countries from 2001 to 2020, totalling 346 observations. The study relied on secondary data from the World Bank's databases. To estimate the effect of fiscal deficits on economic growth, we used a random effect model. The dependent variable GDP growth was analysed through the effect of Public and publicly guaranteed debt from publicly issued or privately placed bonds Inflation, GDP deflator, Unemployment, Foreign direct investment, net inflows as a percentage of GDP, Domestic credit to the private sector as a percentage of GDP. Our research findings reveal that the variable Inflation and Domestic credit to the private sector affect GDP growth and are statistically significant.

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