Public Debt and Economic Growth: a Granger Causality Panel Data Approach

António Afonso and Sebastian Hauptmeier

No 2009/24, Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa

Abstract: This paper analyses the Granger-causality relationship between the growth of the real GDP per capita and the public debt, here represented by the ratio of the current primary surplus/GDP and the ratio of the gross Government debt/GDP. Using OECD annual data for 20 countries between 1988 and 2001, we adapt the methodology recently applied by Erdil and Yetkiner (2008) and we conclude that there is clear Granger causality and that it is always bi-directional. In addition, our findings point to a heterogeneous behaviour across the different countries. These results have important policy implications since not only does public debt restrain economic growth, but also real GDP per capita growth influences the evolution of public debt. Key words: panel data; public debt and economic growth

JEL-codes: C12 C23 H6 (search for similar items in EconPapers)
Date: 2009-04
New Economics Papers: this item is included in nep-fdg
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Citations: View citations in EconPapers (2)

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