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Growth and productivity: The role of government debt

  • Afonso, António
  • Jalles, João Tovar

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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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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