Public Debt and Economic Growth: A Panel Kink Regression Latent Group Structures Approach

Chaoyi Chen, Thanasis Stengos and Jianhan Zhang
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Jianhan Zhang: Department of Economics and Finance, University of Guelph, Guelph, ON N1G 2W1, Canada

Econometrics, 2024, vol. 12, issue 1, 1-19

Abstract: This paper investigates the relationship between public debt and economic growth in the context of a panel kink regression with latent group structures. The proposed model allows us to explore the heterogeneous threshold effects of public debt on economic growth based on unknown group patterns. We propose a least squares estimator and demonstrate the consistency of estimating group structures. The finite sample performance of the proposed estimator is evaluated by simulations. Our findings reveal that the nonlinear relationship between public debt and economic growth is characterized by a heterogeneous threshold level, which varies among different groups, and highlight that the mixed results found in previous studies may stem from the assumption of a homogeneous threshold effect.

Keywords: kink regression model; latent group structures; public debt; debt threshold (search for similar items in EconPapers)
JEL-codes: B23 C C00 C01 C1 C2 C3 C4 C5 C8 (search for similar items in EconPapers)
Date: 2024
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