PUBLIC DEBT AND ECONOMIC GROWTH IN THE EU POST-COMMUNIST COUNTRIES

Our paper empirically explores the relationship between the ratio of government debt to Gross Domestic Product (GDP) and the per capita GDP growth rate for a sample of 10 former Communist countries, currently members of the EU 27, for the 1999-2010 period. The results show a statistically significant non-linear relationship between the government debt to GDP ratio and the per capita GDP growth rate for all the analyzed countries. We have found that the government debt turning point is around 50%. If the government debt to GDP ratio exceeds this level, it could generate a negative impact on the GDP growth rate. The 95% confidence intervals for the debt turning point start as low as 40% of GDP, which calls for more prudent government debt policies.