Debt and Growth: Is There a Magic Threshold?

Andrea Pescatori, Damiano Sandri and John Simon

No 2014/034, IMF Working Papers from International Monetary Fund

Abstract: Using a novel empirical approach and an extensive dataset developed by the Fiscal Affairs Department of the IMF, we find no evidence of any particular debt threshold above which medium-term growth prospects are dramatically compromised. Furthermore, we find the debt trajectory can be as important as the debt level in understanding future growth prospects, since countries with high but declining debt appear to grow equally as fast as countries with lower debt. Notwithstanding this, we find some evidence that higher debt is associated with a higher degree of output volatility.

Keywords: WP; growth rate; Sovereign debt; growth; country peer; GDP volatility; debt trajectory; debt threshold; output volatility; GDP ratio; Threshold analysis (search for similar items in EconPapers)
Pages: 19
Date: 2014-02-13
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Citations: View citations in EconPapers (124)

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