Public Debt and Economic Growth: Is There a Causal Effect?

Ugo Panizza and Andrea Presbitero

No 65, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: This paper uses an instrumental variable approach to study whether public debt has a causal effect on economic growth in a sample of OECD countries. The results are consistent with the existing literature that has found a negative correlation between debt and growth. However, the link between debt and growth disappears once we instrument debt with a variable that captures valuation effects brought about by the interaction between foreign currency debt and exchange rate volatility. We conduct a battery of robustness tests and show that our results are not affected by weak instrument problems and are robust to relaxing our exclusion restriction.

Keywords: Government Debt; Growth; OECD countries (search for similar items in EconPapers)
JEL-codes: F33 F34 F35 O11 (search for similar items in EconPapers)
Pages: 48
Date: 2012-04
New Economics Papers: this item is included in nep-fdg and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (77)

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http://docs.dises.univpm.it/web/quaderni/pdfmofir/Mofir065.pdf First version, 2012 (application/pdf)

Related works:
Journal Article: Public debt and economic growth: Is there a causal effect? (2014)
Working Paper: Public debt and economic growth: Is there a causal effect? (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:anc:wmofir:65

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