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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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  1. Jaejoon Woo & Manmohan S. Kumar, 2010. "Public Debt and Growth," IMF Working Papers 10/174, International Monetary Fund.
  2. Carmen M. Reinhart & M. Belen Sbrancia, 2011. "The Liquidation of Government Debt," BIS Working Papers 363, Bank for International Settlements.
  3. Ugo Panizza & Andrea Filippo Presbitero, 2012. "Public Debt and Economic Growth: Is There a Causal Effect?," Mo.Fi.R. Working Papers 65, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  4. Frits Bos, 2007. "The Dutch fiscal framework; history, current practice and the role of the CPB," CPB Document 150, CPB Netherlands Bureau for Economic Policy Analysis.
  5. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 1676-1706, August.
  6. Reinhart, Carmen & Rogoff, Kenneth, 2010. "Growth in a Time of Debt," CEPR Discussion Papers 7661, C.E.P.R. Discussion Papers.
  7. Carmen M. Reinhart & Vincent R. Reinhart, 2010. "After the Fall," NBER Working Papers 16334, National Bureau of Economic Research, Inc.
  8. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," NBER Working Papers 9908, National Bureau of Economic Research, Inc.
    • Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  9. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  10. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "A Decade of Debt," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6222.
  11. Enrico Berkes & Ugo Panizza & Jean-Louis Arcand, 2012. "Too Much Finance?," IMF Working Papers 12/161, International Monetary Fund.
  12. Reinhart, Carmen & Rogoff, Kenneth, 2010. "Debt and Growth Revisited," MPRA Paper 24376, University Library of Munich, Germany.
  13. Hélène Poirson & Luca Antonio Ricci & Catherine A. Pattillo, 2002. "External Debt and Growth," IMF Working Papers 02/69, International Monetary Fund.
  14. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October.
  15. Stephen Cecchetti & Madhusudan Mohanty & Fabrizio Zampolli, 2011. "The real effects of debt," BIS Working Papers 352, Bank for International Settlements.
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Blog mentions

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  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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