Contributing to the contentious debate on the relationship between sovereign debt and economic growth, I examine the role of theory-driven (non-)sustainable debt-ratios in combination with debt-ratio thresholds on economic growth. Based on both dynamic and non-dynamic panel data analyses in the euro area (EA) 12 countries over the period 1970-2013, I find that non-sustainable debt-ratios above and below the 60% threshold, have a detrimental effect on short-run economic growth, while sustainable debt-ratios below the 90% threshold exert a positive influence on short-run economic growth. In the long-run, both non-sustainable and sustainable debt-ratios above the 90% threshold, as well as non-sustainable debt-ratios below the 60% compromise economic growth. Robustness analysis supports these findings, and provides additional evidence of a positive effect of sustainable debt-ratios below the 60% threshold, as predicated by the Maastricht Treaty criterion, on (short- and long-run) economic growth. Overall, these results suggest that debt sustainability in addition to debt non-linearities should be considered simultaneously in the debt-growth nexus. In addition, the results indicate the importance of a timely reaction of fiscal policy in countries with non-sustainable debts, as implied by fiscal rules, in an attempt to ensure fiscal sustainability and, ultimately, promote long-run economic growth. (author's abstract) / Series: Department of Economics Working Paper Series

Viele Städte und Gemeinden klagen über ihre hohen Haushaltsdefizite. Nun gibt es Kommunen, die extrem stark verschuldet sind und sehr hohe laufende Defizite besitzen und Kommunen, bei denen das weniger der Fall ist, bis hin zu Städten, die Überschüsse erwirtschaften. Zu diesen Phänomenen existieren in der Fachwelt verschiedene Sichtweisen. In dieser Arbeit werden einige der diskutierten Hypothesen aufgegriffen und mithilfe einer multivariaten OLS-Regressionsanalyse empirisch überprüft. Es zeigt sich, dass der Fokus verstärkt auf endogene statt auf exogene Faktoren gelegt werden muss.

This cumulative dissertation extends the literature strand on firm valuation and capital structure under distinctive fiscal considerations by elaborating on corporate finance issues that have not been resolved or not explained in their full magnitude. Essay one reassesses the appropriate valuation of a firm using the APV equation and more appropriately specifying one of its components, the value of tax savings. The second essay thematically follows essay one by utilizing the WACC approach in a multi-state setting under active debt policy. The third and final essay reconsiders capital structure under the artificial restriction of interest deductibility and its resulting influence on the value of potential tax savings. All essays incorporate loss distribution in default for either a partial or a complete loss scenario, thus providing additional insides on this crucial assumption in firm valuation under risky debt.