ON THE IMPACT OF PUBLIC DEBT ON ECONOMIC GROWTH

Atul A. Dar and Sal Amirkhalkhali

Applied Econometrics and International Development, 2014, vol. 14, issue 1, 21-32

Abstract: It is generally agreed that the rapid rise of public debt in most of the developed countries can be traced to the recent financial crisis, and the accompanying slump contributed to this problem. This has sparked debate about the likely adverse macroeconomic impacts of persistent large debts especially on long-term economic growth. In this paper, we attempt to contribute to this debate by examining the impact of public debt on economic growth in 23 OECD countries classified into four groups in terms of their average debt-to-GDP ratio over the 1996-2007 period. We use a general empirical methodology, which is also likely to be better able to represent the law relating economic growth to its determinants. Our empirical results indicate that the marginal impact of debt is negative but very small and statistically insignificant in almost all cases.

Date: 2014
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