Effects of Government Debt on Macroeconomic Activity (The Case of Bulgaria)

Abstract

This paper studies the short-term and long-term impact of government debt on the macroeconomic activity in Bulgaria. The study is based on an econometric analysis that uses various estimation techniques to reveal the characteristics, the significance, and the quantitative expressions of the studied relationships. The empirical results show that short-term government debt increase stimulates real GDP growth. When long-term impact is considered, however, the stimulating effect of government debt growth on GDP dynamics is observed only up to a certain threshold level, beyond which debt increase produces adverse effects on macroeconomic activity.