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Debt and growth: Historical evidence

Christian Breuer and Carsten Colombier ()

No 20-04, FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge from University of Cologne, FiFo Institute for Public Economics

Abstract: In this present paper, we examine the relationship between public debt and economic growth in a large historical panel dataset of 17 OECD economics over the period from 1870 to 2016. In contrast, the relevant literature focuses on the postWW-II period. Several empirical studies provide evidence in support of the 'conventional view' that public debt is adversely associated with economic growth. We show that the relationship between government debt and per-capita GDP growth is neither statistically significant and robust nor unambiguous regarding the sign. While our baseline regressions support the 'conventional view', particularly in the aftermath of World War II, these results are not robust to alternative specifications. This holds for a linear as well as a non-linear relationship between public debt and economic growth. Our outcome suggests that politicians should exercise great caution in using empirical studies on the debt-growth nexus as a guidance for fiscal policy and that further in-depth analyses are needed.

Keywords: Government debt; economic growth; historical dataset; panel regressions; robustness analysis; Staatsschulden; Wirtschaftswachstum; historischer Datensatz; Panelregressionen; Sensitivitätsanalyse (search for similar items in EconPapers)
JEL-codes: E62 H63 C23 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-gro, nep-his and nep-mac
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Journal Article: Debt and growth: historical evidence (2020) Downloads
Working Paper: Debt and Growth: Historical Evidence (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:uoccpe:2004

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