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The Role of Government Debt in Economic Growth

Antonio Afonso and José Alves

No 2014/16, Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa

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 monetary, public finance, institutional and macroeconomic variables. Our results show a negative impact of -0.01% for each 1% increment of public debt, although debt service has a 10 times worse effect on growth. 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: 2014-09
New Economics Papers: this item is included in nep-eec, nep-fdg, nep-gro, nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Journal Article: The Role of Government Debt in Economic Growth (2015) Downloads
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More papers in Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa Department of Economics, ISEG - Lisbon School of Economics and Management, Universidade de Lisboa, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL.
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