Energy consumption in relation to government debt, inflation and investment in selected European countries

Abstract

Several European countries are at high risk relating to government debt, thus economic consequences of soaring public debt have developed into a crucial topic not only across Europe but also worldwide. This paper is the first to investigate the way in which energy consumption is correlated to inflation, investment and particularly government debt, for a panel of 15 European countries from1995 through to 2011. Given the relatively short span of time series data, a GMM model was employed to evaluate the correlation. The study forms the conclusion that energy consumption has a positive correlation with these three variables, whereas only the degree of effect differs. Investment has the most intense influence of these independent variables on energy consumption. According to the results as well, fiscal tightening would moderately decrease energy consumption.