Transitional Behavior of Government Debt Ratio on Growth: The Case of OECD Countries
We revisit how the government debt ratio and real GDP growth relationship varies with indebted levels and two macroeconomic control variables, unemployment rate and inflation rate, in a balanced panel of 19 OECD countries over the period 1993-2007, after the signing of the EU Treaty in Maastricht on February 7, 1992. The empirical results indicate that there is one threshold value of 97.82%, which divides our sample into two regimes. The mean of the real GDP growth rates in the left regime is 1.16% higher than that in the right regime. The significantly positive marginal effects of government debt ratio on real GDP growth in both left and right regimes are consistent with the stimulus view (Eisner, 1992). Neither “debt overhang” nor “debt irrelevance” exists in these OECD countries. Our findings also show that there is a significantly negative marginal effect of unemployment rate on real GDP growth in the left regime, but significantly positive in the right regime. This positive nexus between the unemployment rate and real GDP growth in the right regime is inconsistent with Okun’s Law. Meanwhile, there is a significantly negative impact of inflation rate on real GDP growth in the left regime, but non-significantly negative in the right regime. The transitional behavior from the right to the left regime in Belgium in 2006 and in Canada in 1998 is good example for the highly indebted countries, such as Italy and Japan. Therefore, our empirical findings have important implications for fiscal policymakers, not only in these OECD countries but also in the rest of world.
Volume (Year): (2012)
Issue (Month): 2 (June)
|Contact details of provider:|| Postal: Casa Academiei, Calea 13, Septembrie nr.13, sector 5, Bucureşti 761172|
Phone: 004 021 3188148
Fax: 004 021 3188148
Web page: http://www.ipe.ro/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Benjamin M. Friedman, 1985. "Crowding Out or Crowding In? Evidence on Debt-Equity Substitutability," NBER Working Papers 1565, National Bureau of Economic Research, Inc.
- Fok, Dennis & van Dijk, Dick & Franses, Philip Hans, 2005.
"Forecasting aggregates using panels of nonlinear time series,"
International Journal of Forecasting,
Elsevier, vol. 21(4), pages 785-794.
- Fok, D. & van Dijk, D.J.C. & Franses, Ph.H.B.F., 2004. "Forecasting aggregates using panels of nonlinear time series," Econometric Institute Research Papers EI 2004-44, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Bruce E. Hansen, 2000.
"Sample Splitting and Threshold Estimation,"
Econometric Society, vol. 68(3), pages 575-604, May.
- Robert J. Barro, 1989.
"Economic Growth in a Cross Section of Countries,"
NBER Working Papers
3120, National Bureau of Economic Research, Inc.
- Barro, Robert J, 1989.
"The Ricardian Approach to Budget Deficits,"
Journal of Economic Perspectives,
American Economic Association, vol. 3(2), pages 37-54, Spring.
- Jansen, Eilev S & Terasvirta, Timo, 1996.
"Testing Parameter Constancy and Super Exogeneity in Econometric Equations,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 58(4), pages 735-763, November.
- Jansen, Eilev S. & Teräsvirta, Timo, 1995. "Testing Parameter Constancy and super Exogeneity in Econometric Equations," SSE/EFI Working Paper Series in Economics and Finance 53, Stockholm School of Economics.
- Barro, Robert J., 1979.
"On the Determination of the Public Debt,"
3451400, Harvard University Department of Economics.
- Andres Gonzalez & Timo Terasvirta & Dick van Dijk, 2005.
"Panel Smooth Transition Regression Models,"
Research Paper Series
165, Quantitative Finance Research Centre, University of Technology, Sydney.
- González, Andrés & Teräsvirta, Timo & van Dijk, Dick, 2005. "Panel Smooth Transition Regression Models," SSE/EFI Working Paper Series in Economics and Finance 604, Stockholm School of Economics.
- Hansen, Bruce E, 1996.
"Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis,"
Econometric Society, vol. 64(2), pages 413-430, March.
- Tom Doan, "undated". "TAR: RATS procedure to estimate a threshold autoregression, tests for threshold effect," Statistical Software Components RTS00209, Boston College Department of Economics.
- Hansen, B.E., 1991. "Inference when a Nuisance Parameter is Not Identified Under the Null Hypothesis," RCER Working Papers 296, University of Rochester - Center for Economic Research (RCER).
- Tom Doan, "undated". "RATS programs to replicate Hansen's threshold estimation and testing results," Statistical Software Components RTZ00091, Boston College Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:rjr:romjef:v::y:2012:i:2:p:24-37. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Corina Saman)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.