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Public debt and economic growth: Is there a causal effect?

Ugo Panizza and Andrea Presbitero

POLIS Working Papers from Institute of Public Policy and Public Choice - POLIS

Abstract: This paper uses an instrumental variable approach to study whether public debt has a causal effect on economic growth in a sample of OECD countries. The results are consistent with the existing literature that has found a negative correlation between debt and growth. However, the link between debt and growth disappears once we instrument debt with a variable that captures valuation effects brought about by the interaction between foreign currency debt and exchange rate volatility. We conduct a battery of robustness tests and show that our results are not affected by weak instrument problems and are robust to relaxing our exclusion restriction.

Keywords: Government Debt; Growth; OECD countries (search for similar items in EconPapers)
JEL-codes: F33 F34 F35 O11 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2012-04
New Economics Papers: this item is included in nep-fdg and nep-pbe
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Related works:
Journal Article: Public debt and economic growth: Is there a causal effect? (2014) Downloads
Working Paper: Public Debt and Economic Growth: Is There a Causal Effect? (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:uca:ucapdv:168

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