IS THE CROWD-OUT EFFECT APPLICABLE BETWEEN PUBLIC DEBT AND PUBLIC INVESTMENT IN THE EUROZONE? EVIDENCE FROM A CS-ARDL ANALYSIS

The primary purpose of this study is to explore the effects of public debt on public investment within the Eurozone, focusing on 20 member countries over the period 2000–2023. While the relationship between government borrowing and investment activity has been widely debated, empirical evidence specific to the Euro Area remains relatively limited. To address this gap, the study employs the Cross-Sectional Autoregressive Distributed Lag (CS-ARDL) approach, which offers the advantage of accounting for cross-sectional dependence and slope heterogeneity across countries. This methodology enables the derivation of both short-run and long-run dynamics of the debt–investment nexus. The empirical results consistently demonstrate a negative and statistically significant association between public debt levels and public investment, indicating that rising debt burdens exert a crowding-out effect on public sector capital formation.