Is Public Debt Always Harmful to Economic Growth

Christian Richter () and Sara El Asy ()
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Christian Richter: Faculty of Managemennt Technology, German University in Cairo
Sara El Asy: Faculty of Management Technology, German University in Cairo

No 52, Working Papers from The German University in Cairo, Faculty of Management Technology

Abstract: The relationship between public debt and economic growth has been crucial in economics and economic development not least since the financial crisis in 2007. The problem arises when debt reduces economic growth. Thus, the focus of this paper is to investigate the relationship between public debt and economic growth. In particular, we determine the debt threshold that affects this relationship. We find that there is no single debt threshold valid for all countries and in turn that each country possesses its own country specifics, which affect its economic growth. We also find that debt is not always harmful to economic growth. Last but not least, we compare recent debt levels with the threshold and average debt levels. We also find that exceeding a threshold does not necessarily result in immediate default. This holds in particular for Western European countries where debt levels exceed threshold levels by more than for developing economies.

Keywords: Public debt; Economic growth; Debt Threshold; Threshold model; Time series. (search for similar items in EconPapers)
JEL-codes: C13 C32 H63 H68 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2019-10
New Economics Papers: this item is included in nep-cwa, nep-fdg, nep-gro and nep-isf
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