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Public Debt and Economic Growth in Advanced Economies: A Survey

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  • Ugo Panizza
  • Andrea F. Presbitero

Abstract

This paper surveys the recent literature on the links between public debt and economic growth in advanced economies. We find that theoretical models yield ambiguous results. Whether high levels of public debt have a negative effect on long-run growth is thus an empirical question. While many papers have found a negative correlation between debt and growth, our reading of the empirical literature is that there is no paper that can make a strong case for a causal relationship going from debt to economic growth. We also find that the presence of thresholds and, more in general, of a non-monotone relationship between debt and growth is not robust to small changes in data coverage and empirical techniques. We conclude with a discussion of the challenges involved in measuring and defining public debt and some suggestions for future research which, in our view, should emphasize cross-country heterogeneity.

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Bibliographic Info

Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 149 (2013)
Issue (Month): II (June)
Pages: 175-204

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Handle: RePEc:ses:arsjes:2013-ii-6

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Keywords: Government Debt; Growth; OECD countries;

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References

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Public debt and economic growth, one more time
    by ? in VoxEU.org on 2013-04-25 01:00:00
  2. A new paper on the causality of debt and growth
    by Tyler Cowen in Marginal Revolution on 2013-04-19 18:02:49
  3. Crecimiento económico y deuda pública
    by ? in Tiempo Económico on 2013-04-21 20:23:21
  4. Debt and growth: No ‘tipping point’
    by ? in VoxEU.org on 2013-11-17 00:00:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Markus Eberhardt & Andrea Filippo Presbitero, 2013. "This Time They're Different: Heterogeneity;and Nonlinearity in the Relationship;between Debt and Growth," Mo.Fi.R. Working Papers 92, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  2. Salvatore Dell’Erba & Ricardo Hausmann & Ugo Panizza, 2013. "Debt Levels, Debt Composition, and Sovereign Spreads in Emerging and Advanced Economies," IHEID Working Papers 12-2013, Economics Section, The Graduate Institute of International Studies.
  3. Alexander Chudik & Kamiar Mohaddes & M. Hashem Pesaran & Mehdi Raissi, 2013. "Debt, Inflation and Growth: Robust Estimation of Long-Run Effects in Dynamic Panel Data Models," Cambridge Working Papers in Economics 1350, Faculty of Economics, University of Cambridge.
  4. Philip R. Lane, 2013. "Growth and Adjustment Challenge for the Euro Area," The Institute for International Integration Studies Discussion Paper Series iiisdp426, IIIS.
  5. Megersa, kelbesa, 2014. "The laffer curve and the debt-growth link in low-income Sub-Saharan African economies," MPRA Paper 54362, University Library of Munich, Germany.
  6. Andros Kourtellos & Thanasis Stengos & Chih Ming Tan, 2012. "The Effect of Public Debt on Growth in Multiple Regimes," Working Papers 1210, University of Guelph, Department of Economics and Finance.
  7. Real Arai & Takuma Kunieda & Keigo Nishida, 2014. "Is Public Debt Growth-Enhancing or Growth-Reducing?," KIER Working Papers 884, Kyoto University, Institute of Economic Research.
  8. Markus Eberhardt, 2013. "Nonlinearities in the Relationship between Debt and Growth: Evidence from Co-Summability Testing," Discussion Papers 2013/06, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  9. Costantini, M. & Fragetta, M. & Melina, G., 2013. "Determinants of Sovereign Bond Yield Spreads in the EMU. An Optimal Currency Area Perspective," Working Papers 13/15, Department of Economics, City University London.

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