Economic Growth and Public Debt Threshold: New Evidence from An Emerging Economy

Lucas Sagire () and Peter W. Muriu
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Lucas Sagire: Indonesian Ministry of Finance - Directorate General of Taxes, Indonesia
Peter W. Muriu: Indonesian Ministry of Finance - Directorate General of Taxes, Indonesia

Journal of Economic Development, 2021, vol. 46, issue 4, 105-120

Abstract: The threshold beyond which debt accumulation hinders economic growth in Kenya has not been established. This paper sought to investigate whether a threshold exists in the country’s debt level and its influence on economic growth beyond the threshold. Using annual data from 1980 to 2018, threshold regression technique and statistical loss functions, we found out that there exists a debt-to-GDP threshold of 55.5%. Beyond the threshold, a 10% increase in debt leads to a 1.4% decline in growth. As such, during periods of high debt, policymakers may have to rely on robust economic growth to ensure debt sustainability.

Keywords: Public Debt; Economic Growth; Threshold Regression; Statistical Loss Functions (search for similar items in EconPapers)
JEL-codes: C24 F34 H63 (search for similar items in EconPapers)
Date: 2021
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