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Growth Implosions and Debt Explosions: Do Growth Slowdowns Cause Public Debt Crises?

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  • Easterly William R.

    ()
    (World Bank)

Abstract

The worldwide growth slowdown after 1975 was a major negative fiscal shock; lower growth lowers the present value of tax revenues and primary surpluses and thus makes a given level of debt more burdensome. Most countries failed to adjust to the negative fiscal consequences of the growth implosion and so public debt to GDP ratios exploded. The growth slowdown therefore played an important role in the debt crisis of the middle income countries in the 1980s, the crisis of the Highly Indebted Poor Countries (HIPCs) in the 1980s and 1990s, and the increased public debt burden of industrial countries in the 1980s and 1990s. Econometric tests and fiscal solvency accounting confirm the important role of growth in debt crises. In addition, the HIPCs’ debt problems were worse because they grew more slowly after 1975 than other low income countries due to worse policies.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 1 (2001)
Issue (Month): 1 (February)
Pages: 1-26

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Handle: RePEc:bpj:bejmac:v:contributions.1:y:2001:i:1:n:1

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Web page: http://www.degruyter.com

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Cited by:
  1. repec:idb:brikps:48058 is not listed on IDEAS
  2. Presbitero, Andrea F., 2007. "The debt-growth nexus in poor countries: a reassessment," Economics Discussion Papers 2007-17, Kiel Institute for the World Economy.
  3. Thorvaldur Gylfason & Gylfi Zoega, 2006. "Natural Resources and Economic Growth: The Role of Investment," The World Economy, Wiley Blackwell, vol. 29(8), pages 1091-1115, 08.
  4. World Bank, 2005. "Colombia : Public Expenditure Review," World Bank Other Operational Studies 8559, The World Bank.
  5. repec:idb:brikps:48218 is not listed on IDEAS
  6. Emanuel Kohlscheen, 2010. "Domestic vs external sovereign debt servicing: an empirical analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(1), pages 93-103.
  7. Manoel Bittencourt, 2012. "Economic Growth and Government Debt: Evidence from the Young Democracies of Latin America," Working Papers 201203, University of Pretoria, Department of Economics.
  8. Hélène Poirson & Luca Antonio Ricci & Catherine A. Pattillo, 2004. "What Are the Channels Through Which External Debt Affects Growth?," IMF Working Papers 04/15, International Monetary Fund.
  9. Tito Cordella & Luca Antonio Ricci & Marta Ruiz-Arranz, 2005. "Debt Overhang or Debt Irrelevance? Revisiting the Debt Growth Link," IMF Working Papers 05/223, International Monetary Fund.
  10. Rodney Ramcharan, 2003. "Reputation, Debt, and Policy Conditionality," IMF Working Papers 03/192, International Monetary Fund.

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