Examining the relationship between public debt and private consumption in European OECD countries (2011–2020)

Fisnik Morina; Valdrin Misiri; Shpejtim Alijaj; Fisnik Morina; Valdrin Misiri; Shpejtim Alijaj

doi:10.3934/QFE.2024004

Quantitative Finance and Economics

2024, Volume 8, Issue 1: 75-102. doi: 10.3934/QFE.2024004

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Research article

Examining the relationship between public debt and private consumption in European OECD countries (2011–2020)

1.
Department of Business Management, Faculty of Business, University "Haxhi Zeka", Peja, Kosovo
2.
Department of Accounting and Finance, Faculty of Business, University "Haxhi Zeka", Peja, Kosovo

Received: 03 December 2023 Revised: 24 January 2024 Accepted: 05 February 2024 Published: 19 February 2024
JEL Codes: E21, E22, D12, E31, H62, H63, F43

This study examined the impact of public debt on private consumption in 26 European Organization for Economic Co-operation and Development (OECD) member countries from 2011 to 2020. Analyzing data from OECD, World Bank, and International Monetary Fund reports, we employed various statistical methods, including correlation analysis, linear regression, fixed effect, random effect, and the Generalized Method of Moments model via the Arellano-Bond estimation approach. Our findings indicated that public debt, foreign direct investments, inflation, and gross domestic product (GDP) growth positively influence private consumption, while gross fixed capital formation and exports of goods and services have a negative impact. The study underscores the need for careful consideration of the repercussions of public debt on citizens' daily lives, especially in terms of private consumption, emphasizing the crucial need for policymakers to consider the delicate balance between public debt management and sustainable economic growth in OECD countries for shaping effective economic policies that foster responsible debt management to support long-term economic development.
- public debt,
- private consumption,
- investments,
- inflation,
- economic growth
Citation: Fisnik Morina, Valdrin Misiri, Shpejtim Alijaj. Examining the relationship between public debt and private consumption in European OECD countries (2011–2020)[J]. Quantitative Finance and Economics, 2024, 8(1): 75-102. doi: 10.3934/QFE.2024004

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Abstract

This study examined the impact of public debt on private consumption in 26 European Organization for Economic Co-operation and Development (OECD) member countries from 2011 to 2020. Analyzing data from OECD, World Bank, and International Monetary Fund reports, we employed various statistical methods, including correlation analysis, linear regression, fixed effect, random effect, and the Generalized Method of Moments model via the Arellano-Bond estimation approach. Our findings indicated that public debt, foreign direct investments, inflation, and gross domestic product (GDP) growth positively influence private consumption, while gross fixed capital formation and exports of goods and services have a negative impact. The study underscores the need for careful consideration of the repercussions of public debt on citizens' daily lives, especially in terms of private consumption, emphasizing the crucial need for policymakers to consider the delicate balance between public debt management and sustainable economic growth in OECD countries for shaping effective economic policies that foster responsible debt management to support long-term economic development.

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