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Public Debt Overhangs: Advanced-Economy Episodes since 1800

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  • Carmen M. Reinhart
  • Vincent R. Reinhart
  • Kenneth S. Rogoff

Abstract

We identify the major public debt overhang episodes in the advanced economies since the early 1800s, characterized by public debt to GDP levels exceeding 90 percent for at least five years. Consistent with Reinhart and Rogoff (2010) and most of the more recent research, we find that public debt overhang episodes are associated with lower growth than during other periods. The duration of the average debt overhang episode is perhaps its most striking feature. Among the 26 episodes we identify, 20 lasted more than a decade. The long duration belies the view that the correlation is caused mainly by debt buildups during business cycle recessions. The long duration also implies that the cumulative shortfall in output from debt overhang is potentially massive. These growth-reducing effects of high public debt are apparently not transmitted exclusively through high real interest rates, as in eleven of the episodes, interest rates are not materially higher.

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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 26 (2012)
Issue (Month): 3 (Summer)
Pages: 69-86

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Handle: RePEc:aea:jecper:v:26:y:2012:i:3:p:69-86

Note: DOI: 10.1257/jep.26.3.69
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Sobreendeudamiento: una perspectiva histórica
    by Ramón Mateo in Expectativas Racionales on 2012-08-15 17:12:45
  2. Dealing with the Evidence
    by Jonathan Finegold in Economic Thought on 2013-04-23 17:03:07
  3. Brief notes before April 17th macro lecture
    by Gray in Pseudo-true News on 2013-04-17 07:08:11
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Cited by:
  1. Christophe Van Nieuwenhuyze, 2013. "Debt, assets and imbalances in the euro area. An aggregate view," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 123-152.
  2. Phillip Anthony O’Hara, 2013. "Policies and Institutions for Moderating Deep Recessions, Debt Crises and Financial Instabilities," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(1), pages 19-49, March.
  3. Balázs Égert, 2012. "Public debt, economic growth and nonlinear effects: Myth or reality?," EconomiX Working Papers 2012-44, University of Paris West - Nanterre la Défense, EconomiX.
  4. Ugo Panizza & Andrea Filippo Presbitero, 2013. "Public Debt and Economic Growth in Advanced Economies: A Survey," Mo.Fi.R. Working Papers 78, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  5. Brigitte Granville, 2013. "The Current Eurozone – an impediment to critical French reform," Working Papers 42, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
  6. Kobayashi, Keiichiro, 2013. "A Theory of Public Debt Overhang," CIS Discussion paper series 589, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  7. Bryan J. Noeth & Rajdeep Sengupta, 2012. "Global European banks and the financial crisis," Review, Federal Reserve Bank of St. Louis, issue November, pages 457-480.
  8. Natasa Bilkic & Ben Carreras Painter & Thomas Gries, 2012. "Unsustainable Sovereign Debt - is the Euro Crisis only the Tip of the Iceberg?," Working Papers 56, University of Paderborn, CIE Center for International Economics.

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