Public debt and economic growth in advanced economies: A survey

Panizza, Ugo; Presbitero, Andrea F.

doi:10.1007/bf03399388

Cited by 276 publications

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References 66 publications

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“…4 Despite different sample periods, country coverage, control variables, modelling of the nonlinearity and choice of moment conditions for identification, these studies come to remarkably similar conclusions, namely that beyond a threshold at around 90% debt-to-GDP the relationship between debt and growth is negative significant. However, as demonstrated by Panizza and Presbitero (2013), these findings are either not robust to small changes in the sample, suggesting the results are driven by outliers, or fail to formally test the coefficients on the pairwise linear terms, which on closer inspection typically cannot support the notion of a statistically significant change in the debt coefficient above the threshold.All of the above studies are focused on pooled panel data modelling, implicitly assuming that the long-run equilibrium relationship between debt and growth is the same for all countries in the sample. Existing research has found very different results when moving away from full sample analysis in homogeneous parameter regression models and toward sub-sample analysis along 11 geographic, institutional or income lines (IMF, 2012; Kourtellos, et al, 2012;Eberhardt and Presbitero, 2015).…”

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Nonlinearities in the Relationship Between Debt and Growth: (No) Evidence From Over Two Centuries

Eberhardt

2017

Macroecon. Dynam.

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A note on versions:The version presented here may differ from the published version or from the version of record. If you wish to cite this item you are advised to consult the publisher's version. Please see the repository url above for details on accessing the published version and note that access may require a subscription.For more information, please contact eprints@nottingham.ac.uk Nonlinearities in the relationship between debt and growth: (no) evidence from over two centuries 2 Abstract: I revisit the popular concern over a nonlinearity or threshold in the relationship between public debt and growth employing long time series data from up to 27 countries. My empirical approach recognises that standard time series arguments for long-run equilibrium relations between integrated variables (cointegration) break down in nonlinear specifications such as those predominantly applied in the existing debt-growth literature. Adopting the novel co-summability approach my analysis overcomes these difficulties to find no evidence for a systematic long-run relationship between debt and growth in the bivariate and economic theory-based multivariate specifications popular in this literature.Keywords: public debt; economic growth; nonlinearity; summability and co-summability JEL classification: H63, C22, E62, O40 3 1 Introduction "The latest research [by Reinhart and Rogoff] suggests that once debt reaches more than about 90% of GDP the risks of a large negative impact on long term growth become highly significant."George Osborne, Mais Lecture, February 24, 2010 "The study [Reinhart and Rogoff (2010b)] found conclusive empirical evidence that total debt exceeding 90 percent of the economy has a significant negative effect on economic growth."'The Path to Prosperity,' House Committee on the Budget, April 5, 2011 Despite the rhetoric adopted by a number of governments and opposition parties over recent years, determining a causal link from public debt to long-run growth as well as the potential nonlinearity of this relationship are widely regarded as unresolved empirical issues (IMF, 2012;Panizza and Presbitero, 2014). As above quotes indicate the most influential research on the debt-growth nexus in recent years is unarguably the work by Reinhart and Rogoff (2010b) which has been adopted as justification for fiscal austerity measures by politicians on both sides of the Atlantic. Although recent revelations challenged the descriptive analysis carried out in their paper, Reinhart and Rogoff 4 maintain that "the weight of the evidence to date -including this latest comment [by Herndon, Ash and Pollin, 2014] -seems entirely consistent with our original interpretation of the data" (Wall Street Journal 'Real Time Economics' blog, April 16, 2013), namely that "high debt/GDP levels (90 percent and above) are associated with notably lower growth outcomes" (Reinhart and Rogoff, 2010b: 577; see also Rogoff, 2013). Perhaps aware of the tension between the causal interpretation typically read into this type of statement and ...

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Nonlinearities in the Relationship Between Debt and Growth: (No) Evidence From Over Two Centuries

Eberhardt

2017

Macroecon. Dynam.

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“…They detect a negative correlation between government debt and economic growth, where the negative effect seems to work mainly through reduced investment. Panizza and Presbitero (2013), finally, present a survey of papers dealing with debt and growth. They find that the presence of thresholds and, more generally, of a non-monotonic relationship between public debt and economic growth is neither robust to changes in data coverage nor to the empirical techniques resorted to.…”

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On the relation between public debt and economic growth: an empirical investigation

Fincke

Greiner

2015

Econom. bus. letters

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In this paper we empirically study the relation between public debt and economic growth. We analyze how the public debt to GDP ratio at a certain point in time is cor-related with the GDP growth rate in the following period, where we consider a one-year time span, a three-year time interval and a five-years interval. Using panel data compris-ing seven developed countries from 1970-2012, we estimate a pooled regression model and a random effects model. We find some evidence for a significantly negative relation between debt and growth. Further, for most specifications this relationship does not seem to be characterized by non-linearities.

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“…Reinhart et al (2012) and Panizza and Presbitero (2013) for surveys on this issue. 4 See Reinhart et al (2003).…”

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What happens to the relationship between public debt and economic growth in European countries?

Jiménez‐Rodríguez

Rodríguez-López²

2015

Econom. bus. letters

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The importance of public debt level is mainly related with its impact on economic growth. We analyze the relationship between public debt and economic growth in the core and periphery European countries. We find that higher levels of debt-to-GDP ratio have a negative impact on economic growth in all countries, with Belgium and Ireland being the most affected economies in each type of countries. Moreover, we obtain that economic growth reduces debt-to-GDP ratio and, consequently, economic growth is essential to reduce public debt and improves the general economic situation.

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Public debt and economic growth in advanced economies: A survey

Abstract: There is no simple relationship between debt and growth […]There are many factors that matter for a country's growth and debt performance. Moreover, there is no single threshold for debt ratios that can delineate the "bad" from the "good".

Cited by 276 publications

References 66 publications

Nonlinearities in the Relationship Between Debt and Growth: (No) Evidence From Over Two Centuries

Nonlinearities in the Relationship Between Debt and Growth: (No) Evidence From Over Two Centuries

On the relation between public debt and economic growth: an empirical investigation

What happens to the relationship between public debt and economic growth in European countries?

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