D9 - Intertemporal ChoiceReturn

We analyse potential sources of internal imbalances, specifically as regards private and public indebtedness. The combination of a high public debt and increasing private sector indebtedness have been a source of concern in the perspective of the funding of the economy in examined countries. We utilize the detailed financial accounts as an analytical framework for revealing the development of private sector 's indebtedness in 18 EU countries in the period 1995-2012. Ratio of private debt (non-financial corporations, households and non-profit institutions serving households) to GDP was steadily increasing till 2009 with a decrease in the following years. After the decomposition of the private sector debt several facts stand out. Highly indebted, on the average, are households in Denmark and The Netherlands. Postsocialist countries have still low indebtedness, but are catching up. In panel regressions (fixed effects) the dependent variable is overlapping two-and free-year forward looking averages. The control variables are those usually used in growth equations a la R. Barro. We have utilised also instrumental variables (Pooled IV Two-stage EGLS) and 3 years averages for all variables to capture medium-run impacts. Having analysed the impacts of different private debt variables on the growth rate of real GDP we assert that the impact has been negative and statistically significant in almost all growth regressions.

The recent financial and economic crisis has put considerable strains not only on public but also on private finances. In the paper we analyse the development of nonfinancial corporate debt (measured as liabilities minus shares and other equities) in the time period 1995-2010 for 17 European OECD countries. In growth equations the dependent variable is the growth rate of real GDP per head and forward moving averages of this growth rate. Descriptive statistics reveal that in the examined period the nonfinancial corporations' debt has been rising steadily (first of all in Sweden, the Netherlands and Portugal). The basic estimation technique has been panel fixed effects corrected for heteroscedasticity and autocorrelation. The coefficients showing the impacts of corporate debt on GDP growth have had the sign minus and have been highly statistically significant. A 10 percentage point increase in nonfinancial corporations' debt has been associated with an approximately 5 basis point reduction in per head real GDP growth. We have used also cross-section specific and period specific coefficients to gain a more profound look into the matter.