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Growth and productivity: The role of government debt

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  • Afonso, António
  • Jalles, João Tovar

Abstract

We use a panel of 155 countries to assess the links between growth, productivity and government debt. Via growth equations we assess simultaneity, endogeneity, cross-section dependence, nonlinearities, and threshold effects. We find a negative effect of the debt ratio. For the OECD, the higher the debt maturity the higher the economic growth; financial crisis is detrimental for growth; fiscal consolidation promotes growth; and higher debt ratios are beneficial to TFP growth. The growth impact of a 10% increase in the debt ratio is −0.2% (0.1%) respectively for countries with debt ratios above (below) 90% (30%), and an endogenous debt ratio threshold of 59% can be derived.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 25 (2013)
Issue (Month): C ()
Pages: 384-407

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Handle: RePEc:eee:reveco:v:25:y:2013:i:c:p:384-407

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Web page: http://www.elsevier.com/locate/inca/620165

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Keywords: Government debt; Crises; Panel analysis;

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  1. António Afonso & Hans Peter Grüner & Christina Kolerus, 2010. "Fiscal Policy and Growth: Do Financial Crises make a Difference?," Working Papers Department of Economics 2010/10, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
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Cited by:
  1. António Afonso & João Tovar Jalles, 2011. "Linking Investment and Fiscal Policies," Working Papers Department of Economics 2011/16, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  2. Markus Eberhardt & Andrea F. Presbitero, 2013. "This Time They’re Different: Heterogeneity and Nonlinearity in the Relationship between Debt and Growth," Discussion Papers 2013/10, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  3. Ugo Panizza & Andrea F. Presbitero, 2013. "Public Debt and Economic Growth in Advanced Economies: A Survey," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 149(II), pages 175-204, June.
  4. Laura Jaramillo & Anke Weber, 2012. "Bond Yields in Emerging Economies," IMF Working Papers 12/198, International Monetary Fund.
  5. António Afonso & João Tovar Jalles, 2012. "The Fiscal-Growth Nexus," Working Papers Department of Economics 2012/01, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  6. Jaramillo, Laura & Weber, Anke, 2013. "Bond yields in emerging economies: It matters what state you are in," Emerging Markets Review, Elsevier, vol. 17(C), pages 169-185.
  7. António Afonso, 2013. "Anatomy of a fiscal débacle: the case of Portugal," Working Papers Department of Economics 2013/01, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  8. Simone Salotti & Carmine Trecroci, 2012. "Even Worse than You thought: The Impact of Public Debt on Aggregate Investment and Productivity," DEGIT Conference Papers c017_020, DEGIT, Dynamics, Economic Growth, and International Trade.

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