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The Role of Government Debt in Economic Growth

Antonio Afonso and José Alves

Hacienda Pública Española / Review of Public Economics, 2015, vol. 215, issue 4, 9-26

Abstract: We study the effect of public debt on economic growth for annual and 5-year average growth rates, as well as the existence of non-linearity effects of debt on growth for 14 European countries from 1970 until 2012. We also consider debt-to-GDP ratio interactions with various subsets of monetary, public finance, institutional and macroeconomic variables. Our results show a maximum negative impact of around –0.04% and –0.03% for each 1% increment of public debt, for annual and 5-year average growth rates, respectively. In addition, we find average debt ratio thresholds of around 75%. Belonging to the Eurozone has a detrimental effect of at least –0.5% for real per capita GDP, and the banking crisis is the most harmful crisis for growth

Keywords: government debt; economic growth; debt thresholds (search for similar items in EconPapers)
JEL-codes: E62 H63 O47 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (28)

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Working Paper: The Role of Government Debt in Economic Growth (2014) Downloads
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