EIRP Proceedings, Vol 12 (2017)

Abstract

Abstract: The global recession and the sovereign debt of European countries have triggered an intense   debate over the effectiveness of fiscal policy and over the consequences of rising public debt. The relation between public debt and economic growth is a very studied and discussed debate. This paper aims to focus on some essential questions. A high public debt has a negative impact on economic growth? Does a low economic growth promote the growth of debt? What are the factors that affect the performance of these indicators and the mechanisms of transmission from one to another? The literature identifies two main lines: the Ricardian theory (or the Ricardian equivalence, under which the government debt is equivalent to the future taxes) and the conventional view (according to which the  government debt stimulates aggregate demand and growth in the short term and promotes the reduction of capital and national income in the long term). What about the empirical data? The results are different in different countries and periods. What is the situation in Albania at about the last 25 years? Analyzing the macroeconomic situation and the main causes of a positive growth and a macroeconomic stability, but a high public debt, we can conclude over the expectations and the trend of the future.