Structural determinants of potential output growth in Europe and the role of fiscal policy

  • Roberta De SantisEmail author
  • Piero Esposito
  • Elena Masi
Original Paper


GDP growth in the Eurozone during the last twenty years continuously decreased. In addition, the global financial crisis and subsequent events seem to have, on average, shifted the trajectory of the Eurozone’s potential output downward. A key question is whether this trend is a permanent result of “secular stagnation” or if economic policies might improve the situation. In this paper, we test the impact of several structural determinants of potential output growth using a dynamic panel data methodology for 11 main EMU members for the period 1996–2014. We also take into account the role of fiscal policy stance and debt dynamics to assess whether European fiscal rules, especially in the aftermath of the financial and sovereign debt crises, contributed to the slowdown of potential growth. Estimated results suggest that population, tertiary education, research and development expenditure, trade and financial openness, and institutional quality contributed significantly to potential output growth in the EMU during the period under examination. We further find that debt accumulation affects positively and significantly potential growth for debt values up to 90% of GDP.


Determinants of growth Potential output growth Reforms Institutional quality Fiscal rules Secular stagnation 

JEL classification

O29 O41 O43 O47 



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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  • Roberta De Santis
    • 1
    Email author
  • Piero Esposito
    • 2
  • Elena Masi
    • 3
  1. 1.Italian National Statistical Institute (ISTAT) and LUISS Guido CarliRomeItaly
  2. 2.School of European Political EconomyLUISS Guido CarliRomeItaly
  3. 3.Ministry of Economy and Finance, Treasury DepartmentRomeItaly

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