Public debt, economic growth and nonlinear effects: Myth or reality?

Balázs Égert

Journal of Macroeconomics, 2015, vol. 43, issue C, 226–238

Abstract: This paper puts a variant of the Reinhart–Rogoff dataset to a formal econometric testing to see whether public debt has a negative nonlinear effect on growth if public debt exceeds 90% of GDP. Using nonlinear threshold models, we show that finding a negative nonlinear relationship between the public debt-to-GDP ratio and economic growth is extremely difficult and sensitive to modelling choices and data coverage. In the very rare cases when nonlinearity à la Reinhart and Rogoff can be detected, the negative nonlinear correlation kicks in at very low levels of public debt (between 20% and 60% of GDP). These results, based on bivariate regressions for central government debt from 1946 to 2009, are confirmed on a shorter dataset including general government debt (1960–2010) using a multivariate growth framework and Bayesian model averaging.

Keywords: Public debt; Economic growth; Nonlinearity; Threshold effects (search for similar items in EconPapers)
JEL-codes: E6 F3 F4 N4 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (120)

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Related works:
Working Paper: Public debt, economic growth and nonlinear effects: Myth or reality? (2015)
Working Paper: Public Debt, Economic Growth and Nonlinear Effects: Myth or Reality (2013)
Working Paper: Public debt, economic growth and nonlinear effects: Myth or reality? (2013)
Working Paper: Public debt, economic growth and nonlinear effects: Myth or reality? (2012)
Working Paper: Public debt, economic growth and nonlinear effects: Myth or reality? (2012)
Working Paper: Public Debt, Economic Growth and Nonlinear Effects: Myth or Reality? (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:43:y:2015:i:c:p:226-238

DOI: 10.1016/j.jmacro.2014.11.006

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