Economics at your fingertips  

The laffer curve and the debt-growth link in low-income Sub-Saharan African economies

Kelbesa Megersa

Journal of Economic Studies, 2015, vol. 42, issue 5, 878-892

Abstract: Purpose - – The study of the link between debt and growth has been full of debates, both in theory and empirics. However, there is a growing consensus that the relationship is sensitive to the level of debt. The purpose of this paper is to address the question of non-linearity in the long-term relationship between public debt and economic growth. Specifically, the author set out to test if there exists an established “laffer curve” type relationship, where debt contributes to economic growth up to a certain point (maximal threshold) and then starts to have a negative effect on growth afterwards. Design/methodology/approach - – To carry out the tests, the author has used a methodology that delivers a superior test of inverse U-shapes (Lind and Mehlum, 2010), in addition to the traditional test based on a regression with a quadratic specification. Findings - – The results in the paper present evidence of a bell-shaped relationship between economic growth and total public debt in a panel of low-income Sub-Saharan African economies. This supports the hypothesis that debt has some positive contribution to economic growth in low-income countries, albeit up to a point. Practical implications - – The overall result supports the claim that public debt may start to be a drag on economic growth if it goes on increasing beyond the level where it would be sustainable. Originality/value - – This paper leads the way by implementing a robust test of non-linearity (“inverse-U” test) to the analyses the debt-growth nexus and the laffer curve in Sub-Saharan Africa.

Keywords: Sub-Saharan Africa; Economic growth; Low-income countries; Public debt; Laffer curve (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link) ... d&utm_campaign=repec (text/html) ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
Working Paper: The laffer curve and the debt-growth link in low-income Sub-Saharan African economies (2014) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1108/JES-06-2014-0095

Access Statistics for this article

Journal of Economic Studies is currently edited by Prof Mohsen Bahmani-Oskooee

More articles in Journal of Economic Studies from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().

Page updated 2024-03-31
Handle: RePEc:eme:jespps:v:42:y:2015:i:5:p:878-892