Is High Public Debt Always Harmful to Economic Growth? Reinhart and Rogoff and some complex nonlinearities
In their already-famous 2010 article “Growth-in-a-Time-of-Debt” (AER-100(2)-pp.-573-78), Carmen Reinhart and Kenneth Rogoff show that average post-WW2 economic growth is dramatically declining in advanced economies, once the debt-to-GDP ratio is above a 90% threshold. We explore the relevance of this exogenous threshold using up-to-date econometric techniques, and reveal an endogenously-estimated threshold around a debt-to-GDP ratio of 115%, above which the negative debt-growth link changes sign. Consequently, additional evidence is needed before suggesting policy recommendations regarding growth effects of fiscal policy in such high debt regimes, which may be subject to complex nonlinearities.
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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.:
- Carmen M. Reinhart & Kenneth S. Rogoff, 2010.
"Growth in a Time of Debt,"
NBER Working Papers
15639, National Bureau of Economic Research, Inc.
- 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.
- Antoine Parent, 2012. "A critical note on "This time is different"," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 6(2), pages 211-219, May.
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