The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area

Cristina Checherita-Westphal and Philipp Rother
Authors registered in the RePEc Author Service: Cristina Checherita Westphal

European Economic Review, 2012, vol. 56, issue 7, 1392-1405

Abstract: This paper investigates the average impact of government debt on per-capita GDP growth in twelve euro area countries over a period of about 40 years starting in 1970. It finds a non-linear impact of debt on growth with a turning point – beyond which the government debt-to-GDP ratio has a negative impact on long-term growth – at about 90–100% of GDP. Confidence intervals for the debt turning point suggest that the negative growth effect of high debt may start already from levels of around 70 to 80% of GDP. The channels through which government debt is found to have a non-linear impact on the economic growth rate are private saving, public investment and total factor productivity.

Keywords: Public debt; Economic growth; Fiscal policy (search for similar items in EconPapers)
JEL-codes: E62 H63 O40 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (375)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:56:y:2012:i:7:p:1392-1405

DOI: 10.1016/j.euroecorev.2012.06.007

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