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Public Debt and Growth in U.S. States

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  • Goldberg, Andrew
  • Romalis, John

Abstract

The relationship between public debt and economic growth is a highly contentious issue. This paper examines the relationship between public debt and medium-term economic growth by applying semi?parametric methods to a panel of U.S. states. Partially linear models demonstrate that the relationship between debt and growth is non?linear. Although some borrowing may be beneficial, higher levels of debt exert a negative impact on growth. The principal implication of these results is that public debt may be acting as a drag on growth for U.S. States. The presence of nonlinearities and a negative relationship between debt and growth at a sub-national level suggests that this relationship may also operate at a national level.

Suggested Citation

  • Goldberg, Andrew & Romalis, John, 2015. "Public Debt and Growth in U.S. States," Working Papers 2015-10, University of Sydney, School of Economics.
    • Handle: RePEc:syd:wpaper:2015-10
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