This paper argues that in Euro-area economies, where the ECB cannot bail-out financially distressed governments, the fiscal multiplier is adversely affected by the amount of public debt. A regression model on a panel of 26 EU countries over the period 1996-2011 shows that a 10 percentage point...

When governments loose investors' confidence, additional public spending and the resulting increase in public debt would push-up risk-adjusted interest rates in a more aggressive way. A regression model on a panel of 26 EU countries over the period 1996-2011 shows that a 10 percentage point...