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The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area

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  • Checherita-Westphal, Cristina
  • Rother, Philipp

Abstract

This paper investigates the average impact of government debt on per-capita GDP growth in twelve euro area countries over a period of about 40 years starting in 1970. It finds a non-linear impact of debt on growth with a turning point – beyond which the government debt-to-GDP ratio has a negative impact on long-term growth – at about 90–100% of GDP. Confidence intervals for the debt turning point suggest that the negative growth effect of high debt may start already from levels of around 70 to 80% of GDP. The channels through which government debt is found to have a non-linear impact on the economic growth rate are private saving, public investment and total factor productivity.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 7 ()
Pages: 1392-1405

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Handle: RePEc:eee:eecrev:v:56:y:2012:i:7:p:1392-1405

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Related research

Keywords: Public debt; Economic growth; Fiscal policy;

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References

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  1. Ardagna, Silvia & Caselli, Francesco & Lane, Timothy, 2004. "Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries," CEPR Discussion Papers 4661, C.E.P.R. Discussion Papers.
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  4. Checherita-Westphal, Cristina & Rother, Philipp, 2010. "The impact of high and growing government debt on economic growth: an empirical investigation for the euro area," Working Paper Series 1237, European Central Bank.
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  12. David Alan Aschauer, 2000. "Do states optimize? Public capital and economic growth," The Annals of Regional Science, Springer, vol. 34(3), pages 343-363.
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