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Debt and growth: Is there a constant tipping point?

Lixiong Yang and Jen-Je Su

Journal of International Money and Finance, 2018, vol. 87, issue C, 133-143

Abstract: This paper highlights the crucial role of a time-varying threshold effect of public debt on economic growth. Our contribution is twofold. First, we extend the constant-threshold regression kink model of Hansen (2017) by allowing for a time-varying, state-dependent threshold. Second, we apply our model to investigate the effect of debt on growth, using data from the U.S. over the period of 1791–2009. Our empirical results clearly support a nonlinear debt-threshold effect and the threshold is time-varying and state-dependent.

Keywords: Debt; Growth; Testing; Time-varying threshold (search for similar items in EconPapers)
JEL-codes: C13 C22 C51 E62 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:jimfin:v:87:y:2018:i:c:p:133-143