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Public Debt and Economic Growth: Is There a Causal Effect?

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Author Info

  • Ugo Panizza

    () (UNCTAD and The Graduate Institute, Geneva)

  • Andrea Filippo Presbitero

    () (Universit… Politecnica delle Marche, MoFiR)

Abstract

This paper uses an instrumental variable approach to study whether public debt has a causal effect on economic growth in a sample of OECD countries. The results are consistent with the existing literature that has found a negative correlation between debt and growth. However, the link between debt and growth disappears once we instrument debt with a variable that captures valuation effects brought about by the interaction between foreign currency debt and exchange rate volatility. We conduct a battery of robustness tests and show that our results are not affected by weak instrument problems and are robust to relaxing our exclusion restriction.

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Bibliographic Info

Paper provided by Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences in its series Mo.Fi.R. Working Papers with number 65.

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Length: 48
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:anc:wmofir:65

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Keywords: Government Debt; Growth; OECD countries;

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References

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  1. Ugo Panizza & Dany Jaimovich, 2007. "Procyclicality or Reverse Causality?," Research Department Publications 4508, Inter-American Development Bank, Research Department.
  2. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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  25. 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.
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Citations

Blog mentions

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  6. UN "ESTREMO" APPELLO A VALERIO ONIDA E GUSTAVO ZAGRELBESKY
    by Quarantotto in Orizzonte48 on 2013-03-25 12:21:00
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Cited by:
  1. Balázs Égert, 2012. "Public Debt, Economic Growth and Nonlinear Effects: Myth or Reality?," OECD Economics Department Working Papers 993, OECD Publishing.
  2. Andros Kourtellos & Thanasis Stengos & Chih Ming Tan, 2012. "The Effect of Public Debt on Growth in Multiple Regimes," Working Paper Series 60_12, The Rimini Centre for Economic Analysis.

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  1. Crisi economica del 2008-2013 in Wikipedia (Italian)

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