Do Public and Private Debt Levels Affect the Size of  Fiscal Multipliers?

Adi, Chairul

doi:10.22146/jieb.23172

Cited by 1 publication

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“…However, this conclusion is not robust to alternative specifications. Adi [35] analyses how public and private debt levels shape the effect of spending and revenue stimulus on GDP growth in a balanced panel of 16 countries and an unbalanced panel of 39 countries. The results do not provide any robust evidence that public debt has an influence on how government expenditure or revenue affects GDP growth.…”

Section: Empirical Evidence On the Relationship Between Public Debt And The Fiscal Multipliermentioning

confidence: 99%

The Heterogeneous Public Debt–Growth Relationship: The Role of the Expenditure Multiplier

et al. 2021

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Currently countries are facing a new crisis caused by the COVID-19, which leads to the rise of government expenditures and additional borrowing. This situation highlights the importance of examine factors which determine the level of public debt that still sustains economic growth. A growing body of research supports the idea of a non-linear debt–growth relationship and estimates the threshold level above which debt becomes unsustainable and has a negative effect on output. The empirical evidence points out that there is no single sustainable debt threshold level that holds for all countries. This research complements scarce empirical evidence on the heterogeneous debt–growth relationship and provides some insights on the publicly available statistical indicators that might signal a relatively low/high expenditure multiplier and, at the same time, potentially unsustainable/sustainable growth stimulus through the use of borrowed funds. We test the hypothesis that the expenditure multiplier is shaping the impact of public debt on growth. Our empirical examination is based on panel data analysis in the groups of countries with expected relatively high and low expenditure multiplier. Research results show that a statistically significant negative marginal effect of debt on growth starts to manifest at a lower debt-to-GDP ratio when the expenditure multiplier is lower and vice-versa. The study shed some light on the sources of heterogeneity in a debt–growth relationship. We can conclude that countries with a high expenditure multiplier level can borrow more and sustain growth. In contrast, in countries with a lower expenditure multiplier, a relatively low debt level becomes unsustainable for growth.

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Section: Empirical Evidence On the Relationship Between Public Debt And The Fiscal Multipliermentioning

confidence: 99%

The Heterogeneous Public Debt–Growth Relationship: The Role of the Expenditure Multiplier

et al. 2021

View full text Add to dashboard Cite

show abstract

Do Public and Private Debt Levels Affect the Size of Fiscal Multipliers?

Abstract: This paper investigates the effectiveness of fiscal policies -as measured by the impact and cumulative multipliers -and how they interact

Cited by 1 publication

References 24 publications

The Heterogeneous Public Debt–Growth Relationship: The Role of the Expenditure Multiplier

The Heterogeneous Public Debt–Growth Relationship: The Role of the Expenditure Multiplier

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