Joint research unit 7235

Public debt, economic growth and nonlinear effects: Myth or reality?

Balázs Egert

The economics profession seems to increasingly endorse the existence of a strongly negative nonlinear effect of public debt on economic growth. Reinhart and Rogoff (2010) were the first to point out that a public debt-to-GDP ratio higher than 90% of GDP is associated with considerably lower economic performance in advanced and emerging economies alike. A string of recent empirical papers broadly validates this threshold value. This paper seeks to contribute to this literature by putting a variant of the Reinhart-Rogoff dataset to a formal econometric testing. Using nonlinear threshold models, there is some evidence in favour of a negative nonlinear relationship between debt and growth. But these results are very sensitive to the time dimension and country coverage considered, data frequency (annual data vs. multi-year averages) and assumptions on the minimum number of observations required in each nonlinear regime. In addition, we also show that nonlinear effects can kick in at much lower levels of public debt (between 20% and 60% of GDP). These results, based on bivariate regressions on secular time series, are largely confirmed on a shorter dataset (1960-2010) when using a multivariate growth framework that accounts for traditional drivers of long-term economic growth and model uncertainty. Nonlinear effects might be more complex and difficult to model than previously thought. Instability might be a result of nonlinear effects changing over time, across countries and economic conditions. Further research is certainly needed to fully understand the link between public debt and growth.

AGENDA

Thursday 9 February 2023

Gender, competitiveness, and reaction to defeat

Claire Mollier

Gender, competitiveness, and reaction to defeat

Thursday 9 February 2023

Doctorants

Claire Mollier

Gender, competitiveness, and reaction to defeat

Friday 10 February 2023

Colloques et Workshops

Digital Economics Workshop

Friday 10 February 2023

Colloques et Workshops

Digital Economics Workshop

Tuesday 14 February 2023

Recherche et Economie et Socioéconomie Politique, des Institutions et des Régulations (RESPIR)

Thibault Mirabel

Firms and Cooperatives: The Social Organizations of Production in Market Economies

Tuesday 14 February 2023

Firms and Cooperatives: The Social Organizations of Production in Market Economies

Thibault Mirabel

Firms and Cooperatives: The Social Organizations of Production in Market Economies

Wednesday 15 February 2023

Pratique du Takaful en France: l’expérience de SAAFI

Ezzedine GHLAMALLAH (CERGAM, Université Aix-Marseille)

Pratique du Takaful en France: l’expérience de SAAFI

Wednesday 15 February 2023

Économies du monde musulman

Ezzedine GHLAMALLAH (CERGAM, Université Aix-Marseille)

Pratique du Takaful en France: l’expérience de SAAFI

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