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Public Debt and Economic Growth: A Panel Kink Regression Latent Group Structures Approach

Author

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  • Chaoyi Chen

    (Magyar Nemzeti Bank (Central Bank of Hungary), 1054 Budapest, Hungary
    MNB Institute, John von Neumann University, 6000 Kecskemét, Hungary)

  • Thanasis Stengos

    (Department of Economics and Finance, University of Guelph, Guelph, ON N1G 2W1, Canada)

  • Jianhan Zhang

    (Department of Economics and Finance, University of Guelph, Guelph, ON N1G 2W1, Canada)

Abstract

This paper investigates the relationship between public debt and economic growth in the context of a panel kink regression with latent group structures. The proposed model allows us to explore the heterogeneous threshold effects of public debt on economic growth based on unknown group patterns. We propose a least squares estimator and demonstrate the consistency of estimating group structures. The finite sample performance of the proposed estimator is evaluated by simulations. Our findings reveal that the nonlinear relationship between public debt and economic growth is characterized by a heterogeneous threshold level, which varies among different groups, and highlight that the mixed results found in previous studies may stem from the assumption of a homogeneous threshold effect.

Suggested Citation

  • Chaoyi Chen & Thanasis Stengos & Jianhan Zhang, 2024. "Public Debt and Economic Growth: A Panel Kink Regression Latent Group Structures Approach," Econometrics, MDPI, vol. 12(1), pages 1-19, March.
    • Handle: RePEc:gam:jecnmx:v:12:y:2024:i:1:p:7-:d:1351480
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    References listed on IDEAS

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    1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    2. Afonso, António & Jalles, João Tovar, 2013. "Growth and productivity: The role of government debt," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 384-407.
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