How Does Institutional Quality Shape the Impact of Public Debt on Economic Growth? A Threshold Panel Analysis Over Eu-28

The relationship between public debt and economic growth is one of the cornerstones of the European integration. However, the role of institutional quality in moderating the negative impact of public debt on economic growth the EU area remains unclear. This paper investigates the impact of public debt on economic growth in the EU-28 countries over 1996-2019 by running a threshold dynamic panel estimator. Results show that an inverted U-shaped non-linearity holds when arranging the debt-to-GDP ratio as a threshold. Moreover, there is evidence that a high level of institutional quality moderates the negative impact of public debt on economic performance