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Does Excessive Sovereign Debt Really Hurt Growth? A Critique of This Time Is Different, by Reinhart and Rogoff

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  • Yeva Nersisyan
  • L. Randall Wray

Abstract

The worst global downturn since the Great Depression has caused ballooning budget deficits in most nations, as tax revenues collapse and governments bail out financial institutions and attempt countercyclical fiscal policy. With notable exceptions, most economists accept the desirability of expansion of deficits over the short term but fear possible long-term effects. There are a number of theoretical arguments that lead to the conclusion that higher government debt ratios might depress growth. There are other arguments related to more immediate effects of debt on inflation and national solvency. Research conducted by Carmen Reinhart and Kenneth Rogoff is frequently cited to demonstrate the negative impacts of public debt on economic growth and financial stability. In this paper we critically examine their work. We distinguish between a nation that operates with its own floating exchange rate and nonconvertible (sovereign) currency, and a nation that does not. We argue that Reinhart and Rogoff’s results are not relevant to the case of the United States.

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Bibliographic Info

Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_603.

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Date of creation: Jun 2010
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Handle: RePEc:lev:wrkpap:wp_603

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Related research

Keywords: Government Debt; Government Deficit; Sovereign Default; Reinhart and Rogoff; Economic Growth; Inflation; Modern Money;

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  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, American Economic Association, vol. 100(2), pages 573-78, May.
  2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, Princeton University Press, edition 1, volume 1, number 8973.
  3. L. Randall Wray, 2009. "The rise and fall of money manager capitalism: a Minskian approach," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 33(4), pages 807-828, July.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Il debito pubblico deprime la crescita? Il clamoroso errore di Carmen Reinhart e Kenneth Rogoff
    by guiodic in Keynes Blog on 2013-04-18 10:46:35
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Cited by:
  1. Richard Wood, 2012. "Delivering economic stimulus, addressing rising public debt and avoiding inflation," Journal of Financial Economic Policy, Emerald Group Publishing, Emerald Group Publishing, vol. 4(1), pages 4-24, April.
  2. Sergio Cesaratto, 2012. "Controversial and novel features of the Eurozone crisis as a balance of payment crisis," Department of Economics University of Siena, Department of Economics, University of Siena 640, Department of Economics, University of Siena.

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